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Plunging Retail Sales Fuel Economic Woes

Thu, 22 March 2012 3:03PM

A gloomier than expected picture of the retail sector emerged today, dealing a blow to hopes that the economy was picking up following improved data in the Budget.

Retail sales volumes fell by 0.8% last month, according to the Office for National Statistics (ONS), while January's growth was downwardly revised to 0.3% from an earlier estimate of 0.9%.

The City had been expecting a 0.4% decline in February.

The figures fuelled fears over the strength of the wider recovery in the first quarter of the year, even after data from the Office for Budget Responsibility in yesterday's Budget showed the UK would avoid another recession in 2012.

The tax and spending watchdog revised its growth forecast upwards to 0.8% for the whole year, slightly higher than its last estimate of 0.7%.

The UK economy declined by 0.2% in the final quarter of last year and after the latest retail figures economists estimate the country will narrowly avoid a recession in the first three months of 2012 with growth of around 0.1%.

A recent fall in inflation from above 5% has eased the squeeze on household finances but the latest retail figures, which also revealed a 0.4% drop in retail sales values last month, show consumers are still reluctant to spend.

Nida Ali, economic adviser to the Ernst & Young Item Club, said: "Today's retail figures don't bode well for GDP growth in the first quarter.

"The fundamentals underpinning consumer spending are still weak.

"Wage growth is sluggish, unemployment is on the rise and households are heavily indebted."

According to the ONS, a total of £24.6bn was spent in the retail sector last month.

Food stores saw sales volumes drop 0.1% between January and February, despite customers stocking up on cupboard staples during snowfall and freezing temperatures at the beginning of the month.

Non-food stores fell 1.5% month-on-month, driven by a 1.2% drop in clothing and footwear sales.

The other stores sector, which covers a range of products from carpets to rugs and toiletries to watches, fell 3%.

Within that sector, there was a particularly steep decline in sales volumes in specialised stores such as fine art dealers and antique retailers.

Samuel Tombs, UK economist at Capital Economics, said February's retail sales figures leave the recovery on the high street looking "a bit more fragile than it previously seemed".

He said: "The retail sector looks unlikely to provide as much support to the overall recovery in the first quarter as it did in the fourth quarter."

However two major high street chains bucked the trend - both Next and Kingfisher reported positive results on Friday.

Clothing store Next said 2011 was the perfect retail storm, boosting annual pre-tax profits to £570.3m.

Its fortunes were helped by online and catalogue sales, which rose by 33% and 44% respectively.

Meanwhile, Kingfisher, which owns the DIY chain B&Q saw its pre-tax profits rise by 20% to £809m 2011.

The company plans to add 67 new stores to its existing 950.

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