Retail sales under pressure

Official figures have shown that retail sales grew by a worryingly moderate amount last month.

The Office for National Statistics (ONS) has announced that high street sales volumes increased by just 0.2 per cent in July.

This compares with the 0.8 per cent rise in June.

There was a dip in the sales of household items (down 4.1 per cent on the year), clothes and shoes, the ONS said, although food sales showed a 0.7 per cent increase.

Analysts had been expecting a 0.3 per cent improvement in retail sales.

It is clear that consumers, hit by the rate of inflation, subdued pay settlements and job losses, still have little ability to spend.

Stephen Robertson, the director general of the British Retail Consortium, said: “Customers’ ability to spend is being squeezed by rising costs, particularly utilities and low wage rises.

“Food sales continue to outperform non-food with inflation helping to drive top-line growth. But it’s taking a record number of promotions to tempt customers into stores.”

With global economic fears mounting, the BRC argued that policymakers both in Europe and the US must act quickly to implement a coordinated and credible strategy to reduce public sector deficits while supporting growth.

David Kern, the chief economist at the British Chambers of Commerce, acknowledged that the figures were much as anticipated but insisted that the weakness in consumer spending did not necessarily point to a looming second recession.

Mr Kern said: “The July retail sales figures were broadly as expected, pointing to continued weakness in light of low levels of consumer spending. While disappointing, it is not surprising given the huge squeeze on disposable incomes as a result of higher food and energy costs and the government’s austerity measures. These figures and other economic indicators suggest growth in the third quarter of this year is likely to remain sluggish, although fears of a new recession seem exaggerated. 

“While the economy faces serious challenges over the coming months, some of the pessimism we are seeing is unjustified. Many forecasts made earlier in the year were too optimistic and we now know that the economic situation is more difficult.”

Mr Kern continued that the Government is right to persevere with its deficit-cutting programme. He also said that, given the pressures facing businesses and consumers, it is important for the Bank of England’s rate-setting Monetary Policy Committer to keep the cost of borrowing low until at least the middle of 2012.