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Surprise UK retail sales drop fuels triple-dip recession fears Surprise UK retail sales drop fuels triple-dip recession fears
(about 4 hours later)
Fears Britain may be heading towards an unprecedented triple-dip recession flared again as the government reported a surprise drop in high street spending last month. Cuts in consumer purchasing power and a bout of arctic weather combined in January to cut high street spending for a fourth month, fanning fears that Britain is teetering on the brink of an unprecedented triple dip recession.
Despite surveys suggesting shoppers had been out in force in January, the Office for National Statistics said the volume of retail sales fell by 0.6% in January. A month that saw administrators called in to HMV, Blockbuster and Jessops was crowned by a 0.6% fall in the volume of retail sales, leaving the underlying trend at its weakest in three years.
This followed a revised 0.3% drop in December and reflected the tough trading conditions for shops and stores in the two key trading months of the year. Last month saw a number of high-profile casualties such as HMV and Blockbuster. The figures from the Office for National Statistics surprised the City, which had anticipated a healthy bounce back from December's disappointing sales on the back of strong surveys and a robust performance by John Lewis, which said on Friday its sales in early February were up 22% on a year earlier.
The ONS said retail sales in January were also 0.6% lower than they had been a year earlier – the first time the annual rate of spending has turned negative since the summer of 2011. However, evidence that the surge in consumer spending seen last summer at the time of the London Olympics faded in the autumn of 2012 and continued into 2013 rekindled fears of a third leg to the longest and deepest slump Britain has suffered since the 1920s. Jeremy Cook, chief economist at foreign exchange broker World First said: "These are truly horrible figures and alongside the revision lower of December's numbers, points to a retail landscape on its knees. Consumer spending, or the lack thereof, can be summarised by the recent high-profile high street closures with a low-spending Christmas unable to prop up companies that have been forced to cut prices through the year to combat low demand." Rob Wood, economist at Berenberg Bank, said: "The underlying picture is that the economy is bouncing along the bottom, so weather disruptions can easily tip it into negative territory."
Although the second half of the month saw heavy snowfalls, analysts had been optimistic that spending in January would bounce back from a disappointing December and had been pencilling in a 0.5% increase. Britain entered recession – officially defined as two successive quarters of falling output – in early 2008, only emerging from the slump towards the end of 2009. A second downturn lasted for three quarters from the end of 2011 to the middle of 2012, but until Friday the City was confident that a fresh fall in gross domestic product in the final three months of last year, which saw a contraction of 0.3%, would be followed by a recovery in the first quarter of 2013. "This release brings a (triple) dip back on the table," Wood said.
The ONS said the cold weather had dampened spending, particularly among smaller food stores. A 1.6% fall in sales of groceries in January was a big factor in last month's drop in activity, but household goods stores also suffered. The ONS said January's drop followed a downwardly revised 0.3% decline in retail sales volumes in December, adding that the annual rate of spending growth had turned negative for the first time since the summer of 2011. Cold weather had an effect on spending last month, with the 1.6% drop in spending on food concentrated among smaller retailers. But quarterly data – a better guide to the underlying trend – highlighted the pressure on the sector resulting from the relentless squeeze on consumer spending power caused by wages failing to keep pace with prices.
Quarterly data – a better guide to the underlying trend – highlighted the pressure on the sector resulting from the squeeze on consumer spending power. Retail sales volumes in the three months to January were 0.8% lower than in the three months ending October, and were down by 0.6% excluding fuel. The three month on three month trend was the weakest since the quarter ending in March 2010, the ONS said. The Bank of England warned this week that inflation was likely to remain above its 2% target until 2015, extending a squeeze on real incomes that is making consumers reluctant to spend.
Retail sales volumes in the three months to January were 0.8% lower than in the three months ending in October, and were down by 0.6% excluding fuel. James McCoy, of the polling company YouGov, said: "Since last summer people have been increasingly reticent to spend any spare money they have and are instead looking to save it – something they are now doing at levels not seen since we started tracking it at the start of 2009. This inclination to save has continued into February so for retailers the winter might not be over yet." Catherine McKinnell, a Treasury spokesman for Labour, said: "These very disappointing figures underline the weak state of our economy which has now flatlined for over two and half years. David Cameron and George Osborne must take action now to kickstart the economy and support our struggling high streets before more long-term damage is done."
James Knightley, economist at ING, said: "This adds to the negative news flow with worries over the UK's EU referendum and the Scottish independence vote along with a potential rating downgrade all helping to keep downward pressure on sterling."
Samuel Tombs, an analyst at Capital Economics, said: "January's surprise fall in the official measure of UK retail sales volumes brings the recent run of better economic news to an abrupt end."
Tombs said he expected retail sales to bounce back in February after the poor weather: "Nonetheless, 2013 still looks set to be another tough year for retailers, given the likelihood of a further significant squeeze on real pay and a weaker jobs market."