Retail sales grow at slowest rate for 14 years

Smaller retailers are being hit hardest by the recession, according to the latest official data, which shows that UK retail sales last month grew at the slowest rate since September 1995.

The Office of National Statistics said that the volume of retail sales grew just 0.4 per cent in February, compared with February last year. Sales volumes were 1.9 per cent below January's, although retailers were badly affected by the poor weather conditions early in the month.

Among UK retailers, those with between 70 and 99 employees suffered the worst, according to the ONS, with sales down by 18.6 per cent in February on the same month the previous year, while those with staff of between 10 and 39 slumped by 6.5 per cent. However, retailers with more than 100 staff actually grew sales by 0.8 per cent last month.

The grisly trading conditions were hammered home by some of the high street's biggest names yesterday. Next, the fashion retailer; Kingfisher, the owner of the DIY chain B&Q; and Moss Bros, the branded suit specialist, all posted a drop in annual profits and said they were expecting trading conditions to remain tough. The ONS said that while sales at food retailers slipped by 0.3 per cent in February on the previous month, the grocery sector remains robust compared with the travails of all other sectors, particularly fashion. In February, sales of textiles, clothing and footwear tumbled by 3.7 per cent on January's figures.

Richard Hyman, a strategic adviser to the accountancy firm Deloitte, said: "The performance gap between grocery and non-grocery appears to be widening, especially when you consider the different inflation levels in these sectors. We continue to expect total retail spend across 2009 to fall by around 2.8 per cent. However, while grocers should see total sales value increase by around 3 per cent, sales revenues in the general merchandise sector will fall by 7 per cent."

Retailers are currently swallowing a painful cocktail of falling profit margins, rising taxes, credit insurers pulling cover on their suppliers and the depreciation of sterling against the dollar, which hits their imports.

Howard Archer, the chief UK and European economist at IHS Global Insight, said: "Consumer spending seems poised to weaken substantially over the coming months as soaring unemployment and markedly deteriorating wage growth weigh down ever more heavily on consumers.

"Indeed, more and more people are facing pay freezes or wage cuts, while overtime payments and bonuses are being reduced."

While last month's retail sales were grim, between December and February the volume of retail sales actually rose by 2 per cent, although retailers endured a torrid time in the autumn when the banking sector faced potential meltdown.