UK retail sales are growing at an ever-more anaemic annual pace but do not appear to be collapsing, according to a survey yesterday from the Confederation of British Industry.
UK retail sales are growing at an ever-more anaemic annual pace but do not appear to be collapsing, according to a survey yesterday from the Confederation of British Industry.
Annual growth in sales volumes slowed even further in January to its weakest pace since November 2006, but the year-on-year fall feared by the sector did not materialise.
Retailers meanwhile forecast a pick-up in annual sales growth in February to a rate slightly adrift of the average for the second half of last year.
Expectations that the Bank of England will cut UK interest rates gradually will be reinforced by the signal that consumer spending, although growing much more slowly, is not falling off a cliff.
Such caution on monetary policy at a time when benchmark UK inflation is already above the 2% target set by the Treasury and Bank Governor Mervyn King has cited a danger of a rise to more than 3%, is in stark contrast to the dramatic cuts in US interest rates made by the Federal Reserve.
The Bank of England cut UK base rates from 5.75% to 5.5% on December 6 and is expected to instigate a further quarter-point cut next week. The Fed has cut benchmark US interest rates from 5.25% to 3.5% since September and is expected to announce a further reduction today.
The seeming sharp slowing of consumer spending growth on this side of the Atlantic coincides with a significant cooling of the UK housing market and mounting pressure on household budgets, amid expectations of a sharp economic slowdown and at a time of gyrating financial markets.
US consumers meanwhile look in even worse shape. Many economists fear struggling US consumers will, or have already, pushed the world's largest economy into recession as they draw in their horns in the wake of an American housing market slump.
This slump has its roots in massive default on home loans by those US households with poorer credit ratings served by the sub-prime mortgage sector. This has also triggered a global credit market crisis, which began in earnest last summer and has seen UK banks demand higher interest rates from borrowers and become more fussy about lending.
The CBI said yesterday that 39% of retailers reported their sales between January 2 and 16 were higher than in the corresponding period last year while 34% reported a year-on-year decline in January. The remaining 27% experienced an unchanged position.
Subtracting the percentage suffering a decline from that enjoying a rise, a rounded net 4% achieved higher sales this January than last. Although this signalled the weakest annual sales growth since November 2006, this was a much better outcome than indicated by the net 5% of retailers which had in December predicted a year-on-year decline in sales this month.
Retailers also judged overall that sales in January were normal for the time of year, defying their prediction a month earlier that they would be worse than usual.
Meanwhile, a rounded net 10% of retailers predicts that sales volumes in February will be higher than in the same month last year.
Different retail sub-sectors have encountered contrasting fortunes this month.
The year-on-year fall in sales of durable household goods, such as televisions and washing machines, was the steepest since October 2005.
However, retailers in the footwear and leather, and furniture and carpet sub-sectors enjoyed strong annual growth in sales volumes in January. Both had suffered a year-on-year slide in volumes in December.
Clothing stores continued a bad run, however, with a steeper year-on-year fall in sales this month than in December. A net 29% of clothing retailers reported annual fall in sales between January 2 and 16. The grocery sub-sector continued a strong run, with a net 35% of such retailers reporting an annual rise in sales this month.
John Longworth, chairman of the CBI's Distributive Trades Panel, said: "The January sales were a little flat this year, and were weaker than the lacklustre lead-up to Christmas.
"While sales of groceries and household essentials went quite well, shoppers are watching their wallets, and that can be seen in the big drop in sales of big-ticket items like TVs and washing machines."
He added: "However, this survey and recent CBI manufacturing data show that, while market turbulence is undoubtedly affecting consumer confidence, the economy as a whole is nonetheless bearing up and is continuing to grow, if more slowly.
"Overall retail sales were still better than expected this month, and the high street does predict a slight improvement in February."
Howard Archer, chief UK economist at consultancy Global Insight, said: "The weak CBI survey for January, following on from news (from National Statistics) that retail sales fell 0.4% month-on-month in December, indicates that consumer spending is increasingly faltering in the face of strengthening headwinds.
"Nevertheless, the CBI survey indicates that consumer spending is not collapsing which reinforces the case for the Bank of England to cut interest rates gradually rather than aggressively given current significant inflation risks."
