LONDON: British retail sales slowed unexpectedly sharply in September, dragging quarterly growth to its weakest annual rate since 2013.The decrease suggests that consumer demand remains uncertain as the Bank of England nears its first rate rise in a decade. UK retail sales volumes fell 0.8% in September, the Office for National Statistics said, reversing a jump in August and undershooting all economists’ forecasts in a Reuters poll. Third-quarter growth in the UK slowed to its lowest year-on-year rate since the second quarter of 2013 at 1.5%. Last month the Bank of England said it was likely to raise interest rates in the coming months if the economy and inflation pressures strengthen as expected. But in recent days a few investors have begun to doubt if the bank will move as soon as next month. Markets see a roughly 80% chance of a rate rise on November 2 after the Bank of England’s next meeting. Sterling fell to a one-week low of $1.3126 after today’s data as rate futures pared back the odds of further rate increases in 2018.
Bank of England policymakers said in September that consumer demand was showing signs of improving after weakness earlier in the year, though it was too soon to tell if it would compensate for weak business investment. The ONS said today’s figures pointed to retail sales adding 0.03 percentage points to economic growth in the third quarter, compared with 0.09 percentage points in Q2. The Bank of England and most economists expect economic growth of around 0.3%. The rising cost of goods in stores – which are now increasing at their fastest since March 2012 – meant the amount British shoppers were getting for their money was growing more slowly than the amount they spent, the ONS said. Compared with a year earlier, sales volumes in September alone were up 1.2% compared to the average forecast in a Reuters poll of a 2.1% rise. Consumer price inflation hit a five-year high of 3% in September, largely reflecting the fall in the pound pushing up the cost of imports since last year’s Brexit vote.
UK pay levels have not kept up with inflation. Official data yesterday showed that regular pay in the three months to August was 0.4% lower in real terms than in 2016 – the sixth consecutive month of falls and the longest such run in almost three years. Some shoppers are tightening their belts, as industry data earlier this week showed the market share of Britain’s four biggest supermarkets falling in response to growing sales at German discount chains Aldi and Lidl. Relatively cheap online fashion retailer ASOS also revised up growth forecasts on Tuesday, in part due to stronger demand after it froze its prices despite higher import costs following last year’s fall in the pound.
