Bad weather hampers UK retail sales

British retail sales fell at their sharpest pace in 1

British retail sales fell at their sharpest pace in 1.5 years in January as the harshest cold snap in 30 years and a rise in value-added tax kept people away from the shops.

Coming hard on the heels of weak employment and lending data earlier this week, the figures underlined the fragility of Britain's recovery and sent the pound to a nine-month low against the dollar.

The Office for National Statistics (ONS) said sales volumes, based on a new methodology that includes automotive fuel, fell 1.8 per cent last month. That was more than three times the drop forecasts by analysts and the biggest monthly slide since since June 2008.

On the year, sales were up 0.9 per cent, the weakest annual growth in seven months.

READ MORE

Analysts were reluctant to read too much into the figures given the distortions from the weather, calculation changes and a 2.5 percentage point rise in VAT to 17.5 per cent on January 1st. But they agreed there was a growing risk Britain's economy could shrink at the start of this year.

Britain crept out of recession in the fourth quarter of last year, later than most of its peers, growing by just 0.1 per cent on the quarter.

The statistics office said unusually heavy snowfall last month had pushed down sales of household goods, food and fuel.

Much of Britain ground to a halt at the start of January when snow and ice made roads impassable, and hundreds of schools and businesses were forced to close.

Weekly sales data for the John Lewis department store chain has, however, shown fairly strong growth in February compared with year-ago figures, providing some evidence for a recovery in retail sales once the severe weather was over.

Fuel sales fell by 11.1 per cent in January as Britons cut down on non-essential journeys, while sales of household goods fell by 13.4 per cent, the biggest monthly drop since January 1988. Even excluding fuel, however, sales volumes fell 1.2 per cent on the month, the biggest drop in almost a year.

Retail prices rose an annual 2.3 per cent in January, the fastest rise since September 2008, when consumer price inflation was running at a record high 5.2 per cent.

The Bank of England remains convinced that price pressures will prove short-lived and inflation will fall back to target later this year. It has held interest rates at a record low 0.5 per cent since last March and is not expected to raise them until the end of the year at the earliest.

Reuters