Analysis: British retail sales slump

Retail sales slumped in August, suggesting hopes of a recovery are premature, according to the British Retail Consortium (BRC) retail sales monitor.

The survey revealed year-on-year growth in retail sales fell to 2.2% in August from 3.6% in July and 3.2% in June. On a like-for-like basis retail sales dropped down by 0.1% year-on-year in August after growth of 1.8% year-on-year in July and 1.4% in June.

Food sales continued to perform better than sales of non-food items. Food sales edged up slightly from the lows seen in July, while clothing and footwear sales weakened further.

Furniture and homewares sales declined year-on-year after improving in June and July following summer clearances.

Non-food, non-store sales (including internet, phone and mail order purchases) were 7.9% higher in August than this time last year.

Stephen Robertson, the director general of the BRC, says the “deceptively good” sales growth of June and July were the result of summer price cuts and good weather rather than any major improvement in consumer sentiment.

Slow non-food sales this month show that people are waiting until the last minute to buy autumn and winter clothing , and are reluctant to buy big ticket household items unless they are sufficiently discounted, he adds.

Howard Archer, the chief UK and European economist at IHS Global Insight, says last month’s data dampens hopes of a recovery. He says the “disappointing” report from the BRC shows that consumers still face serious obstacles including rising unemployment, low earnings growth and higher debt levels. These factors are likely to limit their spending for some time to come.

Consumer spending accounts for 65% of Britain’s GDP, so it is crucial to economic recovery, Archer says. But he notes there has been some positive news elsewhere.

In a research note, he says: “While the August BRC report is a blow for hopes that the economy could expand in the third quarter, other consumer data is more encouraging. Car sales rose in July and August, fuelled by the scrappage scheme, while the Bank of England’s regional agents observed in their August report that the decline in consumer spending on services is continuing to slow.

“In addition, latest hard data show that retail sales grew by 0.4% month-on-month and 3.3% year-on-year in July after rising by 1.3% month-on-month in June.”

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