Retail sales suffer biggest slump

Last Modified: 24 Jul 2008
Source: PA News

The biggest fall in retail sales on record reversed a shock rise in May and suggested a consumer spending slowdown was gathering pace.

Retail sales volumes plunged 3.9% between May and June, official data showed, the biggest slump since records began in January 1986. It came after a sunny weather-inspired 3.6% sales leap the previous month, which flew in the face of wider evidence that higher fuel bills and a weaker housing market were squeezing household budgets.

Economists said June's data from the Office for National Statistics (ONS) confirmed shoppers were increasingly reining in their spending, and would reduce pressure for the Bank of England to hike interest rates to bring down soaring inflation.

Allan Monks from JP Morgan said: "Most will see the data as confirmation that the consumer is downshifting, and we would agree that June's release likely marks the beginning of the phase of sustained weakness in the retail sales numbers."

Minutes from the Monetary Policy Committee's meeting this month showed member Tim Besley voted for a rate hike to bring inflation back down to the Government's 2% target. The cost of living measure is currently at an 11 year high of 3.8%.

Vicky Redwood of Capital Economics said: "The sales figures will provide at least some reassurance that weaker consumer demand will prevent retailers from passing on their sharp rises in costs - reducing the chances that Tim Besley will muster a majority for a rate hike next month."

Clothing and footwear shops were the worst hit in June, with sales down 6.9%. Food sales also fell 3.6%, the biggest drop since records began. Economists had been expecting a fall in sales volumes of around 3% last month following May's shock rise, which was revised upwards from 3.5%.

Consumers have been battling with soaring fuel and energy costs this year, as well as rampant food inflation.

Non-food stores as a whole suffered a 4.5% sales drop between May and June, the ONS said, which was the biggest fall on record. Sales volumes at household goods stores, including furniture and electrical goods sellers, fell 5%, the biggest slump since April 1991 when Britain was in the grip of the last recession.

Retail giant Marks and Spencer has been one notable victim of slower spending, warning earlier this month that like-for-like sales fell 5.3% during the quarter to June 28.

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