Tags: uk | retail | sales | shoppers

UK Retail Sales Drop as Cold Weather Deters Shoppers

Friday, 15 Feb 2013 07:07 AM

 

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U.K. retail sales unexpectedly fell in January for a second consecutive month as cold weather kept consumers at home and incomes remained under pressure, hurting spending on food, household goods and auto fuel.

Sales including fuel fell 0.6 percent from December, when they dropped a revised 0.3 percent, the Office for National Statistics said in London. The median forecast of 24 economists in a Bloomberg News survey was for a 0.5 percent increase. From a year earlier, sales declined 0.6 percent.

Bank of England Governor Mervyn King said this week that inflation may accelerate in the coming months, intensifying a squeeze on consumers that has curbed spending. With snowfall also likely to have disrupted construction last month, Friday’s data raise the possibility that the economy will shrink in the first quarter, according to Rob Wood, a London-based economist at Berenberg Bank.

“The underlying picture is that the economy is bouncing along the bottom, so weather disruptions can easily tip it into negative territory,” Wood said. “If the snow disruption is reflected in other industries, with construction being the most likely candidate, then we could well see a quarterly contraction.”

The pound was little changed against the dollar at $1.5488 as of 11:32 a.m. in London. The yen strengthened for a fourth day against the dollar and the euro weakened as Group of 20 finance chiefs and central bankers begin talks in Moscow.

Food Sales

Food sales fell to their lowest level since April 2004 in January, declining 1.6 percent on the month and 2.6 percent from a year earlier, the statistics office said. Sales of household goods dropped 0.3 percent from December and sales of auto fuel declined 2 percent. Sales of clothing and footwear rose 0.4 percent.

Non-store sales including internet purchases fell 0.5 percent. Excluding fuel, retail sales declined 0.5 percent and were up 0.2 percent from a year earlier.

The fall in sales in December was larger than the 0.1 percent initially estimated. In the three months through January, U.K. sales dropped 0.8 percent, the biggest decline since the first quarter of 2010.

The British economy shrank 0.3 percent in the last three months of 2012 and is facing the threat of an unprecedented triple-dip recession. Still, purchasing-management surveys for January showed expansion in both manufacturing and services, which together account for almost 90 percent of gross domestic product.

Recession Risk

“Given it has come early in the quarter, there is some chance of catch-up in February and March,” said David Tinsley, an economist at BNP Paribas SA in London. Still, “overall sales growth in the first quarter now probably looks weaker. At the margin this increases the risk of a decline in first-quarter GDP, though we wouldn’t overstate that for now.”

The weakness of Britain’s retailers has also been underscored by the collapse of companies including HMV Group Plc, the U.K.’s biggest seller of CDs and DVDs, and camera retailer Jessops Plc. Marks & Spencer Group Plc, Britain’s largest clothing chain, said last month that pressure on household incomes will probably continue in 2013 and it is “cautious” about the outlook.

“Relative to previous recoveries, consumer spending remains weak,” the Bank of England said in its quarterly Inflation Report on Feb. 13. “The peak-to-trough fall in consumption was larger during this recession than previous ones, and the recovery has been more subdued.”

Pressure on Consumers

Pressure on consumers may continue after some of the U.K.’s biggest utilities raised gas and electricity prices. Inflation, which was at 2.7 percent last month, may accelerate in the near term and remain above the BOE’s 2 percent goal for two years, the central bank said. By comparison, annual wage growth was 1.4 percent in the quarter through November, ONS data show.

Today’s report showed the annual retail sales deflator, a measure of changes in shop prices, was 0.8 percent. The deflator on food was 3.7 percent.

Separate data today from the National Statistics Institute in Madrid showed Spain’s core inflation rate, which excludes energy and fresh food prices, accelerated to 2.2 percent in January. That’s more than the 2.1 percent median of four forecasts in a Bloomberg survey.

Elsewhere in Europe, a report today showed euro-area exports declined the most in five months in December as the currency’s gains made European goods less competitive abroad. Exports dropped a seasonally adjusted 1.8 percent from November, when they rose a revised 0.6 percent, the European Union’s statistics office in Luxembourg said.

Draghi Comments

European Central Bank President Mario Draghi said that, while the ECB doesn’t target the exchange rate, it plays an important role in assessing the economic outlook.

The ECB’s mandate is to pursue price stability “in both directions,” Draghi said at a press conference in Moscow, where he’s attending the G-20 meeting. “The exchange rate is not a policy target but important for growth and price stability,” he said, adding the central bank will publish new projections next month.

Reports today will probably show U.S. industrial output and consumer confidence increased while manufacturing in the New York region contracted for a seventh month, according to economists surveys.

A report at 9:15 a.m. New York time may show industrial production climbed 0.2 percent in January after a 0.3 percent gain the previous month, according to the median of 81 estimates in a Bloomberg survey of economists. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for February rose to 74.8 from 73.8 at the end of January, a separate survey showed.

© Copyright 2014 Bloomberg News. All rights reserved.

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