High street sales head south

Retail sales in June posted their biggest fall in 17 years. Will cash-strapped consumers push the UK into recession?

by
Last Updated: 06 Nov 2012

The latest figures from the Office for National Statistics show that spending plunged by a whopping 3.9% in June, with food and non-food sales declining at their fastest rate since 1991, and textiles clothing and footwear shrinking more quickly than they have since 2002. So it looks like May’s surprise 3.5% jump was an anomaly, probably caused by a combination of summer clothes shopping and deep discounting. Having stocked up for the holiday season, it seems that shoppers are now firmly closing their purses and wallets once again.

The fall of nearly 4% exceeds analysts' predictions of a 2.5% drop, fuelling fears that the combination of rising commodity prices and falling consumer spending may push the UK into recession by late this year or early 2009. For the technically-minded amongst you, a recession is defined as two consecutive quarters of what economists rather coyly call ‘negative growth’.

The results will add to the pressures on the Bank of England for a cut in interest rates to boost consumer spending, but such calls may fall on deaf ears. As we reported yesterday, the MPC is split over whether the main threat to the economy comes from the slow down in spending or from the spectre of rising inflation.

Still, there are one or two winners out there. The definitive dotcom, Amazon, has just reported profits for the three months to the end of June of $158m, double  those for the same period last year and well ahead of forecasts for what is traditionally a quiet time. It seems that rising fuel prices have been encouraging shoppers to leave the car in the drive and indulge in a little online retail therapy from the comfortable, low-cost environment of their own homes. Sales of electronics at the world’s  largest internet retailer have done particularly well, up 58%, with books and DVDs posting a 31% rise, to boot.

But it’s an ill-wind that blows nobody any good. If fuel prices continue to shape our buying habits, it could lead to a renaissance in city centre shopping as people opt to travel by train or bus rather than car. And who would mourn the loss of a few of those much-maligned out of town retail centres?

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