Bad news for Osborne on retail sales and the Greek bailout

High street sales fall 1.4% - and it looks as though Britain may yet have to cough up as much as €1bn to bail out Greece...

by James Taylor
Last Updated: 19 Aug 2013
Turns out the healthy upturn in retail sales in April was indeed just a temporary phenomenon. After a much-needed boost from the spring sunshine, a Royal Wedding and a double bank holiday, the high street came back down to earth with a bump in May, with sales sliding 1.4%. And although this might be a much more accurate reflection of current conditions than the April figure, it's still grim news for the Government - particularly on a day when it looks as though the Greek bailout could cost us €1bn, and Ed Balls has called for an emergency tax cut to stimulate the economy...

According to the ONS data, larger retailers fared slightly worse than larger ones last month. And grocers really felt the pinch: food spending (which along with fuel, now account for more than half of all consumer spending) was down 3.5%. Of course, there was always likely to be a downturn in sales this month, without all those temporary factors mentioned above. But a fall of 1.4% was worse than the City had expected - and shows that shoppers really are reluctant to splash the cash given all the pressures on their take-home pay.

This will be grist to the mill for the Opposition, of course: in a speech today, Ed Balls argued that we need a temporary VAT cut to put some money back into consumer's pockets, boost confidence, and thus 'jump-start' the economy. If the Office for Budget Responsibility’s growth forecasts turn out to be massively optimistic, as today's data rather suggests they will, the pressure on the Government to think again will only grow.

Another big headache for George Osborne is the ongoing meltdown in Greece, where despite the government's strict austerity measures - which have led to more strikes and demonstrations this week - another bailout looks increasingly inevitable. And despite the fact that we're not even in the Eurozone, the UK could be on the hook for some of the bill: Germany wants the entire EU to fund the bailout, and under the rules agreed by the previous Government, the Chancellor is unable to veto the plan. That means that in the event of Greece defaulting - which also looks likely - we might be on the hook for somewhere between €700m and €1bn. Just what the doctor ordered at the moment...

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