Retail sales fall 3.9% in June

Retail sales in the UK fell 3.9% in June, after they had shown a sudden and unexpected 3.6% record surge in May. The reversal from the revised May figure is the sharpest monthly decline since the series began in 1986.

Analysts had expected a decrease, with consumer spending being squeezed by rising fuel bills and food costs. The fall cut the annual growth rate to 2.2%, while sales in the three months to June were up 0.6% on the previous three months.

During June, both food and non-food sectors suffered their steepest monthly falls since records began, the Office for National Statistics (ONS) said.

Good weather in May had seen these sectors enjoy an unexpected sales boost, with summer drinks and clothing selling well. "June's data finally showed the official data moving into line with the gloomy anecdotal evidence," said Vicky Redwood, an economist at Capital Economics.

"What's more, we think that spending growth will weaken considerably further, as house prices keep falling and inflation and unemployment rise further."

The sharp fall in sales during June pushed the value of the pound lower as expectations rose that the next move in UK interest rates would be down.

"We continue to favour aggressive rate cuts in 2009 with the policy rate touching 3.5% lows seen in 2003," said James Knightley, an economist at ING.

There were signs that the rising cost of food is beginning to feed through, with prices on average in the overall retail sector up 0.5% on the year, the biggest rise since May 2007.

"Official data on retail spending now better reflects the reality of a sharply moderating economy in our view," said Matthew Sharratt, an economist at Bank of America.

"Still, the rate outlook remains clouded by inflation concerns. Retailers are attempting to pass on rising costs despite a clear weakening in domestic demand.

"A stalling economy and rising inflation is a potentially toxic combination."

Household goods sales posted their biggest monthly fall in June since 1991, and textile, clothing and footwear sales fell at their sharpest monthly rate since 2002.

However, sales in non-specialised stores rose 3.1%, the largest growth for this sector since August 2007.

And within the non-store retailing and repair sector sales rose by 6.5%, supporting recent indications that people are mending their existing products rather than buying new replacements.

Source : BBC News