U.K. Retail Sales Fall in Worst Stretch for Shops Since 1996
U.K. retail sales fell unexpectedly for a fourth month in August, the longest stretch of declines in at least 25 years, raising concerns about the economic recovery as a resurgence of coronavirus cases and supply shortages take a toll.
The volume of goods sold in stores and online fell 0.9% after a 2.8% plunge in July, the Office for National Statistics said Friday. Food sales dropped sharply, as consumers steered spending toward bars, eating out and entertainment events newly reopened after lockdowns.
Doubts are growing about the outlook for consumer spending, which powers the British economy. Covid-19 cases are rising and millions of households now face a sharp squeeze on living standards after a surge in inflation. Meanwhile, Brexit and the pandemic have dried up the pool of workers retailers rely on and created supply-chain disruptions.
The fall in sales last month surprised economists, who were predicting a small increase, and sales excluding auto fuel declined 1.2%. It was the first run of four consecutive declines since comparable records began in 1996.
What Bloomberg Economics Says...
“Another unexpected U.K. retail sales plunge in the August data adds downside risk to the GDP outlook for the third quarter. This provides further reason for the Bank of England to hold off ramping up the hawkish rhetoric at its September meeting.”
--Niraj Shah, Bloomberg Economics. Click for the REACT
Sales at supermarkets and department stores dropped along with most other categories tracked by the ONS, which said consumers steered spending toward eating out and entertainment events newly reopened after lockdowns.
A separate survey showed that 6.5% of retail businesses were unable to get the goods, materials and services they needed between Aug. 9 and Aug. 22. The figure was highest at department stores 18.2%, followed by clothing stores at 11.2%.
“Recovery has been bumpy across the sector with many retailers dealing with supply chain disruption and labor shortages,” said Emma-Lou Montgomery, associate director at the fund manager Fidelity International. “Rising prices across the board will also be starting to pile pressure on households and could continue to hamper buying habits down the line.”
The only categories that enjoyed an increase in sales were clothing and fuel as more people returned to offices and traveled for summer holidays.
The figures “should cause markets to doubt” whether the Bank of England will hike interest rates as soon as February, said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics. “The near-term outlook for households’ spending is overcast.”
Figures this week showed consumer prices rose 3.2% in the year to August, the fastest pace in more than nine years. A further acceleration is almost inevitable, with natural gas and electricity bills set to increase sharply in the autumn and supply-chain disruptions leading to shortages of everyday goods.
The government also is paring back support for low-waged workers by phasing out a temporary increase in universal credit benefits. It’s also eliminating a tax break on property purchases and planning to boost payroll taxes in April to pay for improved health care. Meanwhile, an autumn spike in unemployment looms with the ending of furlough payments for those out of work during the pandemic.
High frequency indicators point to a loss of consumer momentum in September, with visits to shops, spending on cards and eating out at restaurants all easing.
“The numbers will stoke further fears that the pace of the U.K. economic recovery is slowing and that the revival in consumer demand has already peaked,” said Stuart Cole, head macro economist at Equiti Capital.
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