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Retail sales fall more steeply than predicted

UK retail sales volumes tumbled by 1.5% month-on-month in January on a seasonally adjusted basis, a much steeper drop than had been forecast by the City, official figures have shown.

CONCERNS: Monetary Policy Committee members had said consumers could cut spending. Picture: Colin Templeton
CONCERNS: Monetary Policy Committee members had said consumers could cut spending. Picture: Colin Templeton

The sales figures, published by the Office for National Statistics yesterday, provided a reminder of continued pressure on household budgets at a time when pay rises continue to lag inflation significantly. The fall in sales volumes in January was the sharpest monthly drop since April 2012

Sales volumes had risen by 2.5% month-on-month in December.

The City had predicted sales volumes would have fallen by 1% in January.

Food sales volumes tumbled by 3.4% month-on-month in January, according to the ONS figures.

Non-food sales volumes edged up by 0.4% last month. Sales of household goods surged by 5.3% month-on-month in volume terms.

However, sales volumes in the non-specialised category, which takes in department stores, dropped by 2.3% last month. And sales in the clothing, footwear and textiles category fell 3.5%.

The weaker sales data kept a lid on the pound. Sterling traded at $1.6629 at 5pm last night, down slightly from its previous London close of $1.6639. The euro was slightly firmer against the pound. It traded at 82.56p, up from 82.29p at its previous close.

Worries on the Bank of England's Monetary Policy Committee about the possibility that households could cut spending sharply, given weak income growth and the degree to which consumption has in recent times been fuelled by people saving less, were revealed this week with publication of minutes of the MPC's February 5 and 6 meeting.

While noting a view on the MPC that, in the near term, the recent trend of households funding consumption growth by saving less was likely to continue, the minutes state: "Continued household spending recovery would need to be driven more by income growth, which was expected to pick up only modestly: that meant consumption growth was likely to moderate.

"But there were risks to the outlook for consumption from the fall in households' saving. For example, if households had unrealistic expectations of rapid income growth, they could cut spending quite sharply as they came to realise that income was not rising so fast. Highly indebted households might be especially vulnerable."

Bank of England Governor Mark Carney earlier this month flagged the unbalanced nature of the UK's economic recovery, and near-record proportions of people working part-time because they could not find full-time jobs.

He said: "We've learned that, as yet, the recovery is neither balanced nor sustainable. A few quarters of above-trend growth driven by household spending are a good start, but they aren't sufficient for sustained momentum...Wage growth remains weak and the household savings rate is likely to fall further."

However, economists did not appear to be particularly concerned by the fall in UK retail sales volumes in January.

Samuel Tombs, at consultancy Capital Economics, said: "The consumer spending recovery still has some underlying momentum. And, looking ahead, sales should be boosted by continued strong growth in employment, rising confidence and the gradual easing of the squeeze on real pay."

The pattern of the ONS sales figures, over December and January, contrasts with industry surveys.

A survey published this week by the Scottish Retail Consortium showed the value of retail sales north of the Border in January was up 4.3% on the same month of 2013, as consumers were tempted by discounting, after displaying caution during the key December trading period. According to the SRC, the value of Scottish retail sales in December was down 1.1% on the same month of 2012.

The British Retail Consortium said the value of UK retail sales in January was up 5.4% on a year earlier, after a weaker December.

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