Bloomberg News

U.K. Retail Sales Fall More Than Forecast as Outlook Darkens

December 15, 2011

(Updates with economist comment in ninth paragraph.)

Dec. 15 (Bloomberg) -- U.K. retail sales fell more than economists forecast in November as cash-strapped households shunned a second month of price discounts and chose to save rather than spend amid warnings of a looming recession.

Sales including fuel fell 0.4 percent from October, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg survey was for a 0.3 percent decline. Excluding auto fuel, retail sales fell 0.7 percent on the month.

The figures underline the pressure being felt by consumers as wages fail to keep pace with inflation and concern mounts that the economy is following the crisis-stricken euro region into recession. Unemployment hit a 17-year high of 2.64 million in the three months through October and is forecast to rise further next year.

“All in all, the picture for U.K. household consumption is not very encouraging,” said Annalisa Piazza, an economist at Newedge Group in London. “The labor market is extremely weak. Average earnings run at less than half the speed of inflation and consumer confidence hit record-low levels. We expect fourth- quarter household consumption to be a drag for GDP growth.”

The pound was trading at $1.5508 as of 12:05 p.m. London time, up 0.2 percent on the day.

The decline last month was led by food sales and a drop in sales of household goods, jewelry, computers, phones and carpets, the statistics office said.

Price Discounts

In the three months through November, sales rose 0.7 percent from the previous quarter. There were upward revisions to the figures for October, with overall sales rising 1 percent on the month instead of the previously estimated 0.6 percent as stores brought forward promotions. On the year, sales were up 0.7 percent, beating the 0.4 percent gain forecast by economists.

Prices, as measured by the retail sales deflator, fell by 0.4 percent in October and by 0.2 percent last month, leaving them 3.6 percent higher than in November 2010. Discounts were more widespread than usual for the period, the statistics office said.

Underlying demand is “fragile” and “there is a good chance that the recent strong performance will falter if retailers ease up on the pace of promotional activity,” said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club. With slowing inflation set to ease the pressure on family budgets, “2012 is likely to be a better year for retailers than in 2011, but only just.”

Crucial Period

Bank of England Chief Economist Spencer Dale said in an interview this week that policy makers have scope to expand their 275 billion-pound ($426 billion) bond-buying program to aid an economy facing at least one quarter of contraction by the middle of 2012.

The downturn comes as retailers enter the crucial Christmas trading period. Deloitte LLP says sales this month will be no better than last year. The prospect of slow holiday sales led retailers including Debenhams Plc and William Morrison Supermarkets Plc to start discounting in an attempt to entice shoppers.

Tesco Plc, the U.K.’s largest supermarket chain, said on Dec. 8 that domestic sales declined for a fourth straight quarter as increased joblessness and rising fuel and food bills weighed on consumer spending.

Retail shares have fallen more than 7 percent this month, compared with a fall of 2.9 percent for the FT350 Index as a whole.

Thomas Cook Group Plc, Europe’s second-largest tour operator, yesterday added to the pessimism gripping the economy by announcing plans to close 200 U.K. shops and scale back its plane fleet with the possible loss of more than 600 jobs.

--With assistance from Mark Evans in London. Editor: Andrew Atkinson

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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