UK retail sales suffer surprise fall for second month in a row

Written by MCM News Desk Thursday, 21 October 2010 11:41

British retail sales suffered a surprise fall in September in a further worrying sign that consumer spending is slowing.This is the second monthly decline in a row and is likely to unsettle retailers nervous about the impact of George Osborne's austerity measures on the High Street, especially the VAT rise to 20pc in January.

Howard Archer, chief UK economist at IHS Global Insight, called the fall in retail sales "surprising and particularly worrying given the importance of consumer spending to the economy".

Sales volumes including petrol fell 0.2pc last month after a downwardly revised drop of 0.7pc in August, according to the Office for National Statistics. Analysts had forecast a rise of 0.4pc last month. On the year, sales were 0.5pc higher, well below forecasts for a reading of 1pc annual growth.

Samuel Tombs, economist at Capital Economics, said the unexpected figures suggested shoppers were cutting their spending even before the fiscal squeeze had started.

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said that while the VAT rise might bring some sales forward into the final months of this year, after that "consumer demand is likely to remain soft with numerous headwinds buffeting households".

"Consumers' spending power continues to be squeezed by high inflation and weak earnings growth, while unemployment is likely to creep upwards as yesterday's public spending cuts begin to bite,” he said.

The Bank of England has signalled that it could start a fresh round of economic stimulus to boost growth as the government reduces a record budget deficit through £81bn of public spending cuts and tax rises.

Mr Osborne, talking on BBC Radio 4, said Bank of England monetary policy could help to shore up the economy while Britain is cutting its budget deficit.

Pressed on whether there was an alternative plan should the shock therapy kill off a faltering economic recovery, he highlighted the central bank's potential role.

"The country needs a decisive plan, we've set out the decisive plan... It has some caution built into it, there is of course the freedom for the Bank of England to deploy monetary policy tools as well," he said.

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