U.K. Retail Sales Drop More Than Forecast on Food, Clothing

U.K. retail sales fell more than economists forecast in October, led by a decline in demand for food and clothing.

Sales including fuel dropped 0.8 percent from September, when they gained a revised 0.5 percent, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg News survey was for a 0.1 percent decline. Food, which accounts for about 41 percent of retail sales, declined 0.6 percent.

Consumers are under pressure as inflation accelerates while the economic recovery struggles to gain momentum. Bank of England Governor Mervyn King said yesterday that price gains are set to remain above the central bank’s 2 percent target into next year, though policy makers haven’t ruled out a fourth round of quantitative easing to encourage economic growth.

“Today’s numbers aren’t terribly positive as far as the fourth-quarter gross domestic product goes,” said David Tinsley, an economist at BNP Paribas SA in London. “There is a reasonable chance that the fourth-quarter release will show the economy slipping backwards. That will raise the political heat for the government amidst talk of the economy triple dipping.”

The pound weakened against the euro after the data were published and was trading at 80.55 pence as of 10:02 a.m. in London. Against the dollar, sterling was at $1.5849, up 0.1 percent on the day.

Clothes Sales

Clothing sales, which account for about 12 percent of total retailing, plunged 2.3 percent in October from the previous month. Sales of clothes had surged 1.9 percent in September due to a boost from school uniforms. From a year earlier, total retail sales were up 0.6 percent in October.

In the three months through October, retail sales rose 0.2 percent compared with the previous three months, compared with a 0.9 percent gain in the third quarter. From a year earlier, sales increased 1.8 percent.

Excluding auto fuel, retail sales fell 0.7 percent last month from September. They rose 1.1 percent on the year.

Today’s report also showed prices are creeping up. The annual retail sales deflator, a measure of changes in shop prices, rose to 0.9 percent in October from 0.7 percent in September. The deflator on food prices jumped to 2.7 percent from 2 percent.

While Britain exited a double-dip recession in the third quarter, King said yesterday that the economy may shrink again in the current quarter. Data yesterday showed unemployment claims unexpectedly jumped by 10,100 last month.

J Sainsbury Plc (SBRY), the U.K.’s third-largest supermarket company, reported a 5.4 percent gain in first-half earnings yesterday, while predicting that the grocery market will remain “challenging.”

Inflation

Inflation accelerated to 2.7 percent last month driven higher by an increase in university tuition fees. Wages are struggling to keep pace. Average earnings grew an annual 1.8 percent in the three months through September, compared with 1.7 percent in the previous period.

Bank of England policy makers voted last week to end their third round of quantitative easing at 375 billion pounds ($594 billion) as officials assessed the strength of the recovery alongside risks to inflation. King said the U.K. faces “the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” and the bank “has not lost faith in asset purchases as a policy instrument, nor has it concluded that there will be no more purchases.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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