Price rises hurt UK retail sales

UK retail sales fell more than expected in February, undoing some of January's rebound, after a jump in prices hit volumes, according to data released today.

The Office for National Statistics said sales volumes including automotive fuel fell 0.8 per cent last month after a downwardly revised increase of 1.5 per cent in January. That took sales up 1.3 per cent on the year. Analysts had forecast a fall of 0.6 per cent on the month and an annual rise of 2.3 per cent.

The ONS said the fall in sales was broad-based. The only two sectors to record sales growth on the month were automotive fuel and non-store retailers.

It noted that prices including fuel leapt at their fastest monthly pace since 1994, up 2.5 per cent. Excluding fuel, prices were 2.4 per cent higher on the month - the biggest rise since the series began in 1988.

Prices were also significantly higher on the year, with the implied deflator including fuel up 3.9 per cent - its highest since September 2008 - after a rise of 2.7 per cent in January.

The ONS said that higher prices were only partly due to January's 2.5 percentage point increase in value added tax.

It noted that the rise in prices had been accompanied by a fall in sales volumes and said there were signs that high food prices were also having an impact on volumes in that sector.

The figures will add to the Bank of England's worries about rising price pressures and weak consumer demand.

Excluding fuel, retail sales fell 1 per cent on the month and were up 1.2 per cent on the year, versus forecasts for a fall of 0.6 per cent on the month and a rise of 2.4 per cent on the year.

High inflation, muted wage growth and the uncertain economic outlook are expected to weigh heavily on consumer spending in the months ahead, dampening a recovery in the economy which has in the past been heavily reliant on consumer demand.

Weak growth coupled with high and rising inflation pose a dilemma for the Bank. The central bank held interest rates at their record low of 0.5 per cent this month, saying it was worried about the sharp deterioration in consumer spending.

Reuters