British retail sales in the three months to February recorded their biggest slide in nearly seven years as higher fuel prices eroded shoppers’ disposable income, official data showed on Thursday.
Inflation is beginning to climb rapidly in the wake of the hefty slide in sterling seen after June's vote to leave the European Union. Economists expect this to eat into consumer demand, the main motor of British economic growth.
Sales volumes in February alone beat all economists’ expectations in a Reuters poll, jumping by 1.4 per cent from January, but this was too little to offset a drag from weak demand in previous months, according to the Office for National Statistics (ONS).
Looking at the three months to February as a whole, sales volumes were down by 1.4 per cent after a 0.5 per cent decline in the three months to January, their biggest fall since March 2010.
A drag on overall first-quarter economic growth now looks all but certain unless March sees an unprecedentedly large jump in sales, the ONS said.
Inflation jump
Official data earlier this week showed consumer price inflation jumped to 2.3 per cent, its highest in more than three years. The narrower measure of inflation used by the ONS to calculate retail sales growth rose to its highest since March 2012, at 2.8 per cent.
"The underlying trend suggests that rising petrol prices in particular have had a negative effect on the overall quantity of goods bought over the last three months," said ONS statistician Kate Davies.
Compared with a year earlier, February sales volumes were up 3.7 per cent – beating forecasts for a 2.6 per cent rise – after growing just 1per cent on the year in January.
The outlook for consumer spending is key for policymakers gauging the outlook for Britain’s economy as it gears up to leave the European Union.
Spending by shoppers was robust in the months following June’s Brexit vote. But more recently there have been signs that retail spending is starting to wilt as inflation rises – fuelled partly by the pound’s plunge since the referendum.
Eating out up
Retailers report that shoppers were buying less in response to higher prices, though the picture is mixed. Other areas of consumer spending, such as eating out, have been growing robustly, a Bank of England report showed on Wednesday.
On Thursday, one of Britain's biggest clothing retailers, Next, said it was "extremely cautious" about the year ahead after it reported a 4 per cent fall in annual profits.
The retailer blamed a long-term shift in Britons’ appetite for new clothing, as well as cost pressures and shoppers having less disposable income.
By contrast, a day earlier, the finance chief of home improvements retailer Kingfisher said she had not yet seen any big change in customer behaviour, despite concerns about the outlook.
Lead indicators of demand, such as the number of tradesmen buying costly power tools and work wear, were holding up "very well", Karen Witts said after Kingfisher released annual earnings on Wednesday.
