High Street spending rises but housing market still in doldrums

Deep price cuts and an early start to the summer sales lifted high-street spending last month as Britain's retailers sought to combat the impact of rising taxes and modest pay rises on consumer behaviour.

Despite the troubles of well-known names such as Jane Norman, Habitat and TJ Hughes, the British Retail Consortium (BRC) said the value of sales in June was 1.5% higher than a year earlier, when activity slumped following a surge in spending in April triggered by warm weather and the spate of bank holiday weekends.

Two separate reports released on Tuesday highlight the depressed state of the UK's housing market. The Royal Institution of Chartered Surveyors (Rics) reported weak activity and falling prices, while the accountants PwC predicted that it would take until 2020 before property prices recovered to their pre-crash levels.

The BRC reported that like-for-like sales – which take account of the increase in retail floor space – were slightly lower than in June 2010 but Stephen Robertson, the organisation's director general, expressed relief that the trading position for shops and stores had not been worse.

"And remember, the higher VAT rate is making the year-on-year comparison look better than it really is, while retailers are coping with higher costs because of increased utility bills, rates and the burden of regulation. Sales continue to be under huge pressure from the squeeze on disposable incomes produced by rising inflation and low wage growth. Underlying conditions are still tough but being masked by a minor revival in non-food sales driven by price cuts and clearance events starting earlier this year."

The City believes the latest inflation figures due out on Tuesday will show that the annual rise in the cost of living as measured by the consumer prices index (CPI) remained unchanged at 4.5% last month.

Rics' housing spokesperson, Alan Collett, said: "The housing market was pretty flat during June. Buyer interest in purchasing property remains relatively low across much of the UK and the volume of new stock coming to the market has slackened. With continued uncertainty over the jobs market and the economy, this subdued picture is set to continue. London, however, remains a market apart with sales and prices showing a greater degree of resilience."

According to reports from UK surveyors, house prices at a national level continued to slip during June. The gap between firms reporting falling prices and those saying they were rising stood at 27 percentage points, little changed from the balance of 28 points in May.

John Hawksworth, chief economist at PwC, said the market was likely to stay in the doldrums. "We expect average UK house prices to drift down further over the next year and then enjoy only a modest recovery over the next few years. This reflects the dampening impact of declining real income levels and continued tight credit conditions for first time buyers in particular.

"Later in the decade, however, we do expect stronger house price growth as supply shortages reassert themselves and credit availability gradually returns to more normal levels, But it will be a long slow road to recovery." he said.

The consultancy firm CEBR said the UK was likely to face a prolonged period of sluggish economic growth that would result in the government missing its targets for cutting the UK's budget deficit.

Scott Corfe, an economist at CEBR, activity would increase by 1.2% in 2011 and by less than 2% in each year from 2012 to 2014. 2013, much weaker than currently being forecast by the independent Office for Budget Responsibility. The CEBR said slow growth would result in borrowing being £25bn higher in 2015-16 than the £29bn currently pencilled in by the OBR.

Source : Larry Elliot - Guardian.co.uk
www.guardian.co.uk/business/2011/jul/12/high-street-spending-housing-market