Surprise rise in shop sales ‘keeps rate cuts off agenda’

Aug 22 2008 by Sion Barry, Western Mail

But figures give an ‘overly upbeat picture’ of mood on high street, say economists

RETAIL sales staged a surprise revival last month, official figures showed yesterday.

Sales volumes in July were 0.8% higher than the previous month, the Office for National Statistics (ONS) said. The data was in stark contrast to a 0.2% fall expected by the City, and the record 3.9% fall reported in June.

The biggest contribution to July’s rise was a 2.8% increase for “other stores”, which includes sales of computer games and mobile phones. Clothing and shoe shops also saw a 1.5% improvement compared to previous month.

Economists said the rise, although a surprise, meant any quick interest rate cuts from the Bank of England's Monetary Policy Committee (MPC) remained unlikely.

Vicky Redwood, of Capital Economics, said she suspected the official sales figures gave an “overly upbeat picture” of the mood on the high street.

But she said there was a risk that consumer demand remained resilient enough for retailers to try to pass on more of their cost rises to shoppers, continuing the upward trend in inflation.

“And as long as upside inflation risks remain, near-term rate cuts remain off the agenda,” she said.

Geoff Dicks at RBS said the sales data showed inflation was continuing to escalate, primarily among food prices.

“Price deflation elsewhere appears to be diminishing and this is likely to constrain the magnitude and timing of monetary policy easing,” he said.

Caroline Buckner, Barclays Commercial Bank retail specialist for Wales, said: “The strong figures quoted for July are on the surface a surprise and contradictory to market expectations. “However, with underlying growth year-on-year of only 2%, retail sales are still slowing.

“As a comparison, even with the gloomy outlook in January, figures in relation to the previous January had still increased by over 6%, a third more than the growth we see this month even though at the time this was the slowest rate of increase for two years.

“Furthermore, the need to pass on costs by pushing through price increases has become apparent, with retail prices risen by 1.6% this month compared to just 0.6% in the year to June.

“We are seeing this price push predominantly in the food sector, supported by less marked price discounting in end-of-season sales.

“Looking forward, Welsh retailers are having to make careful preparations for the Christmas period, especially in terms of cash flow forecasting to manage their cost base.

“With the added pressure of new retail spaces opening in major centres such as Cardiff, Liverpool and London’s west end, retailers are facing further uncertainty as to whether demand will meet supply in the months ahead.”

Stephen Robertson, director general, British Retail Consortium (BRC), said: “Few retailers will recognise this positive picture. These ONS figures suggest July’s total sales values were up 3.8% on a year ago, well above the miserly 1.7% shown by the BRC’s figures.

“ ONS say year-on-year growth was higher in July than June. Our retail sales monitor shows it fell. ONS don’t measure like-for-like sales, but our figures show July sales down on a year ago.

“There is no evidence that fundamental conditions are improving for customers or retail businesses. Consumer confidence remains low, unemployment is rising and the housing market weakening.

“It’s hard to see what could produce the sales-growth boost ONS are reporting or their finding that smaller retailers are outperforming larger ones.

“We respect the ONS’s process but this report doesn’t seem to reflect the current retail reality.”