Spend, spend, spend: High street sales defy slowdown predictions
Britain's high street spending spree continued unabated last month, defying predictions of a slowdown, according to data published yesterday which also pointed to renewed signs of weakness in the manufacturing sector.
The volume of shop sales rose by 0.6 per cent in August compared with July, while figures for the previous two months were revised upwards, the Office for National Statistics (ONS) said. The increase, which was driven by strong growth in sales of household goods such as fridges and TVs, was higher than expected and pushed the yearly sales increase up to 5 per cent.
The figures will come as a relief to the Bank of England, which is concerned that a slowdown in consumer spending could upset the country's economic recovery. The statistics came a day after minutes from the Monetary Policy Committee suggested the eight-strong body was leaning towards a further cut in interest rates.
Simon Rubinsohn, the chief economist at Gerrard stockbrokers, said: "The rise captures the fact that the real income gains people are enjoying, coupled with the strong employment picture and the continued fall in prices is sustaining decent volume growth."
Nick Verdi, at Barclays Capital, said the increase showed the effect of the early Easter and golden jubilee holiday, which kept shoppers away from the high street, was a one-off. "My feeling is that [spending] won't come off sharply as some have suggested. The consumer is very much alive and kicking."
The ONS data tie in with recent healthy sales from a slew of high street groups, including Tesco, William Morrison, B&Q and Next. But retailers remain wary of being too bullish, with many drawing a distinction between August and September, especially given the recent warm weather.
Mr Rubinsohn said August's strength was boosted by goods becoming cheaper as shops cut prices to lure customers. "Falling prices encourage people to spend more so volumes are still growing," he said.
Separately, ONS data also showed that the Government was loosening its purse strings, with public sector net borrowing soaring to £2.2bn in August against expectations of a deficit of £800m. John Butler, UK economist at HSBC Markets, said: "This combination of robust consumer and government spending should provide a major support to the economy over the next six months."
Meanwhile, figures from the CBI suggested the tentative recovery among manufacturers had suffered a setback, with orders falling to a six-month low in September. The survey showed that downward pressure on prices remained intense, with the balance of firms expecting to cut prices by more than in the past three months. Ian McCafferty, the CBI's chief economist, said: "Uncertain global conditions and rising oil prices continue to be thorns in the side of the economic recovery."
The figures came as Chris Allsopp, an MPC member, argued against using rates to burst asset price bubbles, such as those generated by the booming housing market.
"In my view, the most persuasive argument against using interest rates to moderate destabilising processes is one of credibility and transparency.... If the interest rate has another role, being used to moderate the shock structure, the reaction function is far less rule-like and predictable and the system is likely to be less transparent and accountable," he said in a speech at Cambridge University.
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