U.K. Retail Sales Drop More Than Forecast on Weather: Economy

Photographer: Paul Thomas/Bloomberg

A pedestrian passes a sale sign in the window of a Hobbs store in Manchester, U.K., on Monday, April 1, 2013. Close

A pedestrian passes a sale sign in the window of a Hobbs store in Manchester, U.K., on... Read More

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Photographer: Paul Thomas/Bloomberg

A pedestrian passes a sale sign in the window of a Hobbs store in Manchester, U.K., on Monday, April 1, 2013.

U.K. retail sales fell more than forecast in March as cold weather during the month depressed purchases of clothing and household goods.

Sales including fuel fell 0.7 percent from February, when they increased 2.1 percent, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg News survey was for a 0.6 percent decline. From a year earlier, sales declined 0.5 percent.

Weak wage growth and accelerating inflation are squeezing household budgets, hitting sales on Britain’s high streets and at shopping malls. Bank of England policy makers are split on the need to expand stimulus, with a majority expressing concern that the prolonged period of inflation above their 2 percent target may undermine price stability.

“The outlook for household demand remains weak,” said Simon Hayes, an economist at Barclays Plc in London. “It is hard to see a sustained recovery taking hold until the caution around household income prospects lifts, making the latest rise in unemployment and weakening in employment particularly unwelcome.”

Excluding fuel, retail sales fell 0.8 percent in March from February and rose 0.4 percent from a year earlier. Last month was the second coldest March on record and stores said it damped sales, according to the statistics office.

‘Challenging’

The pound was little changed against the dollar after the data were published. It traded at $1.5248 as of 11:04 a.m. London time. Gilts fell, pushing the 10-year yield up two basis points to 1.70 percent.

Sales at food stores rose 0.9 percent in March, according to today’s report. Clothing and footwear declined 3.1 percent, while household goods plunged 6.2 percent, led by a drop in demand for electrical appliances and hardware materials.

Debenhams Plc (DEB), the U.K.’s second-largest clothing retailer, said today that consumer sentiment remains “weak” and market conditions are “challenging.”

The report also showed that non-store retailing -- which includes internet shopping, catalogs and markets -- rose 6 percent in March from February and was up 26 percent on the year. That’s the biggest annual increase since records began in 1988. The ONS said internet sales accounted for 10.4 percent of all retail sales in March.

In the first quarter, retail sales rose 0.4 percent. The ONS is due to publish gross domestic product data for the quarter on April 25, which will show whether Britain has slipped into a triple-dip recession.

German Outlook

In Germany today, the country’s leading economic institutes said Europe’s biggest economy is shrugging off a contraction at the end of last year and starting to grow due to revived exports and rising private consumption.

Germany will expand by about 0.8 percent this year, double the rate forecast by the government, and pick up momentum to grow 1.9 percent in 2014, the group, which includes Munich’s Ifo institute, said. The euro area will probably contract 0.4 percent this year and expand 0.9 percent in 2014, it forecast.

The International Monetary Fund also sees the euro-area economy shrinking this year, by 0.3 percent.

The Washington-based fund cut its U.K. outlook this week -- forecasting 0.7 percent growth -- and said the BOE should consider increasing stimulus. It also said Chancellor of the Exchequer George Osborne should consider easing the pace of budget cuts.

Minutes of the BOE’s April meeting published yesterday showed Governor Mervyn King was defeated for a third month in a push for more stimulus. Six of the nine-member panel voted to keep the target for quantitative easing at 375 billion pounds ($572 billion), raising concerns about dislodging inflation expectations.

Today’s ONS report showed that the retail sales deflator, a measure of changes in shop prices, fell to 0.6 percent in March from 0.7 percent in February. Excluding auto fuel, the deflator was 0.9 percent. On food sales, the deflator was at 3 percent.

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

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

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