ONS reports significant drop in retail sales

Retail sales volumes fall twice as fast as expected as households struggle with unemployment and falling real incomes. The ONS said retail sales volumes fell 0.8% in February, the sharpest drop in nine months.

A drop in high street spending has dampened hopes of a new year bounceback for the struggling UK economy and underscored the pressures on households a day after George Osborne vowed to push on with Britain's austerity drive.

Retail sales volumes fell twice as fast as expected last month while January's rise was revised sharply lower, according to official statistics. The news is a blow to the chancellor as he pins his hopes on a recovery this year to avoid recession and soften the impact of the coalition's cuts. His budget on Wednesday quickly came under fire for ushering in a tax cut for the super rich while taking money away from pensioners and some working families.

Households have struggled with rising unemployment and with falling real incomes as their wages have failed to keep pace with inflation during Britain's lacklustre recovery.

Underlining those pressures, the Office for National Statistics reported that retail sales volumes fell 0.8% on the month in February, the sharpest drop in nine months. They were a mere 1% higher than a year earlier, less than half the 2.5% growth forecast by economists in a Reuters poll.

Analysts said the fall and downward revisions to sales growth in December and January cast doubt over the recovery that had been suggested by company results and business surveys.

"February's UK retail sales figures leave the recovery on the high street looking a bit more fragile than it previously seemed," said Samuel Tombs at Capital Economics.

"With the budget doing little to ease the burden of the next round of austerity measures due to hit households in April, the high street recovery looks set to be short-lived again."

The ONS said the February drop was driven by the sharpest fall for two years at "other stores", a category that includes jewellers, carpet stores, haberdashers and computer shops. Within in that the biggest drop was in sales of fine art and antiques.

In value terms, sales fell 0.4% in February, again the weakest performance since last May.

The data echo a cautious outlook from retailers, although there have been reports of high street profits recovering in recent weeks.

The head of Next, Britain's second largest clothing retailer, said earlier on Thursday that he expected the UK consumer mood to remain subdued in 2012.

"I don't think things are going to get any worse than last year, they may get slightly better, but I don't think they're going to get a lot better," chief executive Simon Wolfson said after reporting a 5% rise in profits last year.

He said the benefit to the British consumer of falling inflation was being offset by unemployment and tight credit availability.

He is also worried that a worsening of the eurozone debt crisis will hit UK consumer sentiment.

Kingfisher, Europe's biggest home improvements retailer, was also wary about the short-term economic outlook, but was confident of coping, thanks in part to improved margins on cheaper goods from China.

Meanwhile the longer term outlook for Britain's high streets remains uncertain, with a warning this week that four out of 10 shops will have to shut in the next five years as consumers turn their backs on traditional stores in favour of online shopping. A report from Deloitte highlighted how the boundaries between physical and virtual space were becoming blurred with thousands of shops likely to face closure.

Source : Katie Allen & Phillip Inman - The Guardian
www.guardian.co.uk/business/2012/mar/22/retail-sales-figures-economic-recovery