(Corrects second paragraph to say sales fell in March.)
U.K. retail sales unexpectedly fell in April, led by the biggest drop in food sales for almost two years and indicating continued weakness in consumer spending
Sales including fuel declined 1.3 percent from March, when they fell 0.6 percent, the Office for National Statistics said today in London. The median forecast of 25 economists in a Bloomberg News survey was for a 0.1 percent increase. Food sales plunged 4.1 percent, the most since May 2011.
U.K. inflation slowed in April, which may ease the squeeze on households, and the Bank of England has forecast a gradual recovery in consumer spending. Still, weak wage growth may limit any pickup in expenditure, with Marks & Spencer Group Plc (MKS) saying yesterday that the consumer backdrop remains “challenging.”
“We’ve seen retail sales pick up at the start of the year and that helped the overall economy to grow,” Samuel Tombs, an economist at Capital Economics Ltd. in London, said before the data. “But here’s a lingering squeeze on household pay from inflation. So this pickup is unlikely to be sustained.”
The drop in food sales may have been partly due to rising prices, the statistics office said. It added that poor weather hindered sales of summer ranges, including barbecue equipment and garden furniture. From a year earlier, total retail sales rose 0.5 percent.
Excluding fuel, retail sales fell 1.4 percent in April from March and were up 0.2 percent from a year earlier.
Sales of clothing, textiles and footwear rose 0.8 percent last month, while household goods stores saw sales increase 3.8 percent.
Bank of England Governor Mervyn King said last week that a U.K. recovery is now “in sight.” The central bank sees the economy expanding 0.5 percent this quarter after growth of 0.3 percent in the previous three months.
Still, there are risks to the recovery, including the tensions in the euro area. In the U.K., while inflation slowed to 2.4 percent last month, it continues to outpace wage growth. Consumer confidence declined in April as households became more concerned about their personal finances, according to GfK.
Next Plc (NXT), the U.K.’s second-largest clothing retailer, said this month it is “cautious” about the consumer backdrop, because the “continuing decline in real earnings will depress discretionary spending for at least the next eighteen months, if not longer.”
Separate data today showed Britain’s underlying budget deficit widened in April. The shortfall excluding temporary support for banks was 10.2 billion pounds ($15.4 billion), compared with 8.9 billion pounds a year earlier. The figure excludes the transfer of coupon income from the Bank of England’s gilt holdings to the Treasury.
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