Dip in food sales depresses UK retail trade

UK RETAIL sales unexpectedly fell the most in 10 months in August as demand for food plunged, reversing a surge recorded in the previous month.

Sales including fuel declined 0.9 percent from July, the Office for National Statistics (ONS) said yesterday. The median forecast of 20 economists was for a 0.4 percent gain. Food sales dropped 2.7 percent after increasing the same amount in July, which was the biggest gain since April 2011.

The report contrasts with recent indicators pointing to a strengthening economy, including a factory survey released yesterday showing orders at the highest in six years.

The Bank of England, which plans to keep interest rates low until the UK economy has achieved sustainable expansion, said yesterday that the recovery was “taking hold” and its staff raised their growth forecast for this quarter to 0.7 percent from 0.5 percent.

“While the data is disappointing on the month, the trends in sales continue to look solid,” said David Tinsley, an economist at BNP Paribas and a former central bank official. “The release [yesterday] is probably a useful reminder that the economy’s progress is not going to be a one-way progression to soar-away data.”

The pound extended its decline against the dollar after the report. It was down 0.5 percent by 11.20am in London.

Retailers reported that food sales “returned to a more normal level” last month after being boosted by hot weather in July, the ONS said. Excluding food, sales rose 0.4 percent in the month.

Also driving the decline were household goods, which fell 1.6 percent, led by a 7.8 percent drop in furniture.

That was partly due to the timing of a public holiday on August 26 after the reporting period for the August data had ended. Furniture sales are often boosted by discounting by stores during holiday weekends. Clothing and footwear sales rose 1.1 percent.

From a year earlier, total retail sales were up 2.1 percent last month. Excluding fuel, sales fell 1 percent from July and increased 2.3 percent from August last year.

Yesterday’s report also showed that non-store retailing surged a record 28.7 percent in August from a year earlier. The statistics office said the “exceptionally high growth” was due to a weak figure in 2012 during the London Olympic Games.

Separately, the Confederation of British Industry said its measure of UK factory orders rose from 0 points last month to 9 points in September, a sixyear high. A measure of output expectations for the next three months rose to 33 from 25, the highest since March 1995.

To cement the recovery, central bank policymakers have said they would not raise their benchmark interest rate until unemployment fell to 7 percent.

Governor Mark Carney said the statement of forward guidance was aimed at giving certainty that the bank would not tighten until “jobs, incomes and spending are recovering at a sustainable pace”.

Second-largest UK clothing retailer Next said this month that a decline in real earnings “will rule out a strong recovery in the consumer economy”.

While the outlook for the economy is improving, consumers may remain under pressure as inflation running at 2.7 percent outpaces wages, which grew an annual 1 percent in the three months to July.

The Bank of England said an increase in oil prices might add to upward pressure on inflation in the near term. – Bloomberg