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UK retail sales post biggest quarterly fall since 2010

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04/21/2017 | 05:10pm CEST
A shopper reaches for a box of tea in a supermarket in London

British retail sales posted their biggest quarterly fall in seven years in the first three months of 2017, as rising prices since last year's Brexit vote put more pressure on consumers, official data showed on Friday.

The volume of goods sold in shops and online contracted by 1.4 percent in the three months to the end of March, after rising 0.8 percent in the last three months of 2016, the Office for National Statistics said.

This was the biggest quarterly decline since early 2010, and reinforced most economists' view that household spending, the main driver of the economy, is now slowing sharply.

Sterling fell after the data to its lowest level since Prime Minister Theresa May called for an early election on Tuesday, and finance minister Philip Hammond went on the defensive, insisting that strong job growth would bolster consumer morale.

But with wage growth proving sluggish - and one Bank of England policymaker saying on Friday that inflation could hit 3 percent later this year - many households are likely to find their incomes are falling in real terms.

"Families are facing the fastest rise in living costs for over three years and they are reining in their spending rapidly," Richard Lim, chief executive of the Retail Economics consultancy, said.

"We're concerned for the outlook for the retail industry given the toxic mix of rising operating and sourcing costs against a backdrop of weaker consumer demand and heightened political and economic uncertainty."

Retail sales data are not a precise guide to household consumption, but analysts said Friday's figures were an unpromising signal for the economy, corroborating other surveys that show inflation taking a toll on household finances.

The ONS said falling retail sales were likely to shave around 0.1 percentage points off first quarter economic growth data due next week - the first negative contribution from the sector since late 2010.

Retail sales volumes during March alone were worse than all forecasts in a Reuters poll of economists. They shrank by 1.8 percent, after a 1.7 percent increase in February.


The ONS said the recent poor run of retail sales figures appeared to be linked to rising inflation. Its measure of retail prices rose 3.3 percent in March compared with a year ago, the biggest such increase in five years.

The broader official measure of consumer prices is also rising strongly, led by rising energy costs and exacerbated by the pound's fall following last June's vote for Brexit.

The outlook for consumer spending is key for policymakers gauging the outlook for Britain's economy as it gears up to leave the EU.

Hammond told reporters in Washington that the retail data was volatile on a monthly basis, and the BoE sees only a limited correlation between retail sales and longer-term trends.

Michael Saunders, a member of the BoE's Monetary Policy Committee, said economic growth this year and next might slightly beat the BoE's February forecasts - though he expected this to be driven by exports and investment, not by consumers.

Reports from retailers themselves have been mixed. Associated British Foods'  discount fashion arm, Primark, traded well through Britain's Easter holiday period, the group's boss said on Wednesday.

The ONS said there was no evidence to suggest the timing of the Easter holidays distorted retail sales figures for March, though some analysts said they thought it might have been a drag - suggesting scope for an April rebound.

"But even bearing this in mind, it is difficult to put a positive spin on today's figures," Victoria Clarke, economist at Investec, said.

Year-on-year, retail sales growth slowed to 1.7 percent in March from 3.7 percent in February, compared with forecasts of 3.4 percent growth.

(Additional reporting by David Lawder in WASHINGTON; Editing by Larry King and Hugh Lawson)

By Andy Bruce and Alistair Smout

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