Retail sales figures reflect grim January for shoppers

Quoted by Phillip Inman Economics correspondent guardian.co.uk, Tuesday 7 February 2012 12.20 GMT

Retailers suffered a drop in sales last month as bargain-hunting shoppers sought to limit their spending ahead of a difficult year.

Fears of rising unemployment and the uncertain economic outlook encouraged shoppers to cut back on luxury foods and repay debts instead.

Retail sales values were down 0.3% on a like-for-like basis in January, the British Retail Consortium (BRC) said, the second worst January since the survey started 17 years ago. The figure compared with last January when sales had risen 2.3%.

The figures contrasted with more positive business data last month showing manufacturing and services firms were beginning to be more optimistic about their prospects.

However, several economists said the BRC data, which covers 60% of retailers, chimed with weak figures from the CBI's distributive trades survey and poor lending figures from the Bank of England. Without strong consumer spending growth the economy could enter its second recession in three years.

A further sign that consumers are wary of spending is likely to weigh heavily on Bank of England policymakers on Thursday when they meet to set interest rates and decide whether the economy needs a further £50bn injection of electronic money.

The Bank's programme of quantitative easing has already injected £275bn into the financial system in an effort to boost lending.

The BRC figures showed the decline in retail sales was driven by a sharp slowdown in food sales, following the Christmas boost in December, though non-food sales were weak as well.

Stephen Robertson, BRC director general, said: "Customers parked their worries in December and spent, encouraged by discounts.

"Now, in the New Year, reality has bitten again as concerns about jobs, wages and household costs reassert themselves.

"Despite consumer confidence improving in January, actual spending shows households concentrating on paying off debt, saving and battening down for another tough year."

Internet, mail-order and phone sales growth slowed in January after picking up sharply in December. Sales were 11.3% up on a year ago, less than December's 18.5% gain but similar to the 12.3% in January last year.

Clothing sales slowed sharply to near zero growth after a good December, the BRC said, with womenswear suffering most, while men's and children's clothes continued to show year-on-year gains, albeit much smaller than in December.

The association added that any sales were largely discount-driven with a consequent hit on margins as people had waited for clearance sales, especially when buying big-ticket items.

Howard Archer, chief UK economist at IHS Global Insight, said: "It is currently hard to be optimistic over the prospects for consumer spending in the early months of 2012 at least.

"Consumers' confidence is still very low despite picking up in January, while their purchasing power is still under severe pressure from relatively high inflation, muted wage growth and tight fiscal policy."

Vicky Redwood, chief UK economist at Capital Economics said the BRC figures provided further evidence that high street spending has slipped back after the pick-up seen at the end of last year.

"Although consumer confidence nudged up in January, it remains at a low level consistent with a further slowdown in sales growth. Overall, then, we still think that the pre-Christmas pick-up in spending was largely a one-off," she said.

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