U.K. Retail-Sales Index Falls to Lowest in 16 Months, CBI Says

A U.K. retail-sales index fell to its lowest level in 16 months in September as Britons cut back spending on clothes and groceries amid a squeeze on household budgets, the Confederation of British Industry said.

The gauge slipped to minus 15 from minus 14 in August, the London-based business lobby said in a report today. That’s the lowest since May 2010 and stores expect sales will fall at a “broadly similar pace” in October, the CBI said.

U.K. consumer confidence is weakening as the recovery falters and spending power is eroded by inflation that is almost double wage growth. Cooling growth and Europe’s debt crisis have refocused policy makers’ attention away from rising prices, and most Bank of England officials said this month that expanding stimulus is “increasingly probable.”

Consumer confidence continues to be bruised by a combination of low wage growth, high prices and rising unemployment,” Judith McKenna, chief operating officer of Wal-Mart Stores Inc. (WMT)’s Asda unit and chair of the CBI’s distributive trades panel, said in a statement. “With the consumer squeeze set to get tighter” after utilities raised prices, “we expect retailers will face a challenging October.”

The decline in the retail-sales index in September was led by grocery stores, the CBI said. Clothing demand fell at the fastest pace since July 2009, while household goods saw a “rapid” decrease in sales volumes as Britons cut back on home improvements.

A three-month moving average of retail sales dropped to its lowest since August 2009, while the expectations gauge for October was at minus 14.

Tesco Plc (TSCO), the U.K.’s largest supermarket chain, said on Sept. 22 it will lower prices on 3,000 essential items such as milk, fruit and vegetables as it seeks to attract cash-strapped shoppers. “Across the country, families are telling us the same thing -- their budgets are under real pressure,” Tesco’s U.K. chief Richard Brasher said.

Demand on suppliers also fell in September, though at a slower pace than in August, the CBI said. That gauge rose to minus 16 from minus 22. An index of expected demand on suppliers next month fell to minus 19, the lowest since September 2009. A measure of the volume of stocks in relation to expected demand slipped to 16 from 22.

“Sales remained well below average for the time of year, and below expectations,” the lobby group said. “Retailers anticipate that sales will remain below seasonal norms next month.”

The CBI report is based on a survey of 74 retailers between Aug. 25 and Sept. 14.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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