Weak retail data raise recession fears
19 February 2010
, By Daniel Pimlott (The Financial Times)http://www.ft.com/cms/s/0/e96aa554-1d3b-11df-b12e-00144feab49a.html
The heaviest snowfalls in decades and the rise in value added tax caused havoc on the high street in January, forcing retail sales down sharply and raising the threat that the economy could slip back into recession in the first quarter.
Sales volumes fell 1.2 per cent excluding petrol and diesel as parts of the country were brought to a standstill by snow early in the month. The rise in VAT back to 17.5 per cent after 13 months at a lower rate probably also contributed to reluctance to spend.
The data, from the Office for National Statistics, echo private sector surveys from the British Retail Consortium and CBI employers’ group reporting very weak sales in January. The BRC said it had been the worst January for retailers in 15 years.
Including fuel, sales fell 1.8 per cent, the biggest drop in business on the high street since 1995, apart from an unusually volatile period in spring of 2008.
“High street spending grew at relatively solid rates in the second half of last year and it would be no surprise if sales bounced back in the next month or two,” said Jonathan Loynes, of Capital Economics.
“At the very least, these numbers provide a very weak platform for sales in the first quarter of this year and therefore raise the chances that the economy may succumb to a double-dip.”
Employment data out this week were weaker than expected, showing a rise in jobs benefits claimants. There was a sharp drop in mortgage lending in the first month of the year, and anecdotal evidence of weak lending to households and businesses. The purchasing managers index for January was strong for manufacturing but showed a sharp slowdown in growth in services.
Sales were particularly weak at supermarkets, falling 2.4 per cent in the month, while non-food stores saw flat sales. Household goods sales were particularly hard hit, falling 13.4 per cent in the month. Fuel sales, which tend to be erratic, were down 11.1 per cent.
But in spite of the poor month, sales are up 0.7 per cent in the past three months compared with the previous three, and up 2.6 per cent compared with a year earlier.
“Today’s bigger-than-expected fall could add to fears that underlying consumption growth is set to remain subdued this year,” said Colin Ellis, economist at Daiwa Europe. “And with the labour market still very weak and private sector earnings growth almost nonexistent – and tax rises and public spending cuts looming on the horizon – there is little reason to expect a strong bounceback in household spending this year.”