Housing boom, food discounting and vacuum ban boost UK spending
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Version 0 of 1. Supermarket price wars, a booming housing market and a rush to buy high-powered vacuum cleaners before they were banned by new EU environmental rules helped boost spending in the shops and online last month. Prospects of a sixth successive quarter of robust growth were boosted by official figures showing a 0.4% jump in retail sales last month and the strongest August mortgage lending since the month before the collapse of Lehman Brothers in September 2008. But some hints of the slowdown in the pace of recovery predicted by the Bank of England for the second half of 2014 emerged from a steep fall in export orders reported by the CBI and by a weakening in the upward trend of consumer spending. The Office for National Statistics said bumper sales of energy-guzzling vacuum cleaners played a major role in keeping shop tills ringing – contributing 25% of the increase in retail sales last month. But the ONS data also highlighted the impact of the robust housing market on demand for furniture, carpets and consumer durables such as cookers and fridges. Sales of household goods were 12.7% higher in August than a year earlier, the strongest annual increase for 13 years. Furniture retailers reported year-on-year sales growth of more than 23%, the highest since recent records began in 1988. The ONS said the volume of retail sales in the latest three months was 0.5% up on the three months ending in May. That marked a slowdown from quarterly growth rates of 0.8% in the first quarter and 1.5% in the second. Howard Archer, the chief UK economist at IHS Global Insight said: "It is evident that many retailers continued to encourage consumers to spend by engaging in discounting and promotions in August." He pointed out that the ONS's price deflator, which is a proxy for sales prices, fell by 1.2%. "While this reflected a sharp fall in petrol prices, it is notable that the retail sales deflator excluding petrol was down by 0.7% year-on-year with food stores' prices falling by 0.1% as the supermarket pricing war continued." The Council of Mortgage Lenders said its members lent £18.6bn in August, 5% lower than July but 13% higher than August 2013. Although the figure includes remortgaging, the CML said the bulk was for house purchases. The last time August lending was so high was in 2008, when it hit £19.3bn. CML chief economist Bob Pannell warned analysts should not read too much into the steep annual rise. "A gentle slowing of lending activity may now be in prospect, as a result of the continuing impact of tighter lending rules and a softening of the London market," he said. The CBI said orders for Britain's factories had dried up as the slowdown in the eurozone and tension between Russia and the Ukraine led to a harsher climate for exporters. Its monthly snapshot found that firms were reporting a big drop in demand from overseas – falling to its lowest level since the start of 2013. Although firms said they had no immediate plans to cut back on output, the downbeat industrial trends survey from the UK's leading employers' organisation added to recent evidence that the economy will struggle to maintain the production levels seen in recent quarters. Of the 488 manufacturers quizzed, 24% said their total order books were above normal for September while 28% said they were below normal. The balance of -4 percentage points came after a +12 point balance in August and was the weakest for 11 months. Against a backdrop of renewed stagnation in the eurozone, and escalating tension in eastern Europe and the Middle East, only 14% of firms said their export order books were above normal against 38% saying they were below normal. Katja Hall, the CBI's deputy director general, said: "Export orders for UK manufacturers are faltering, which is disappointing. However, it's encouraging that output growth has remained solid and firms expect production to rise strongly in the next quarter." More than a third of companies (36%) planned to boost output over the next three months, while 9% expected production cuts. The balance of +27% was slightly down on the +31% recorded in August. |