U.K. retail sales dropped by a record in March as accelerating inflation squeezed households’ finances and concerns about employment prompted consumers to cut back, the British Retail Consortium said.
Sales at stores measured by value fell 1.9 percent from a year earlier, partly due to the timing of Easter in 2010, the London-based BRC said in a report today. That’s the biggest drop since the series began in 1995 and compares with a 1.1 percent gain in February. On a like-for-like basis, which excludes new store openings, sales fell 3.5 percent, the most since 2005.
U.K. households are seeing their spending power eroded at the fastest rate in more than 60 years as food and energy costs soar and the aftermath of the recession restrains wage increases. Signs of a faltering economic recovery as well as the government’s value-added tax increase and the deepest spending cuts since World War II are undermining consumer confidence.
“Uncomfortably high inflation and low wage growth have produced the first year-on-year fall in disposable incomes for 30 years,” BRC Director General Stephen Robertson said in the report. The combination has “left people unwilling to spend unless they really had to.”
The pound declined as much as 0.7 percent against the dollar after a report showed U.K. inflation unexpectedly slowed for the first time in eight months. Sterling was trading at $1.6233 as of 10:24 a.m. in London and the yield on the 10-year British government bond fell 7 basis points to 3.74 percent.
Inflation Over Target
The rate of annual consumer-price gains dropped to 4 percent in March from 4.4 percent in February, the Office for National Statistics said today in London. Last month’s reading was double the Bank of England’s target. The central bank left its key interest rate at a record low of 0.5 percent last week as a faltering recovery takes priority over the threat from prices.
Big-ticket home and furniture purchases “suffered most” in March and sales were often promotion-led, the BRC said.
The U.K. housing market “remained flat during March” with evidence of “low sales levels and falling demand,” the Royal Institution of Chartered Surveyors said today. Still, a U.K. house-price gauge rose 3 points to minus 23 in the month, a sign value declines eased, RICS said.
HMV Plc, the music and books retailer, and Carpetright Plc, both issued profit warnings last week. Andy Bond, former chief executive officer of Wal-Mart Store Inc.’s Asda chain, said the “retail recession” is still ahead and forecast an “extended period of constrained consumption.”
In the three months through March, food sales dropped 0.3 percent from the same period a year earlier on a like-for-like basis, the BRC said. Sales of non-food items fell 1.1 percent.
The data “has led to fresh worries that consumer spending is nose-diving in the face of weak incomes and rising taxes,” Michael Saunders, an economist at Citigroup Inc. in London, said in a note to clients today. “However, while consumer spending is undeniably sluggish, it is likely that the relatively late timing of Easter this year is exaggerating the drop.”
The BRC said the Bank of England should consider delaying any increase in borrowing costs as that may put more pressure on retailers.
“Supporting our weak economy must be the priority,” Robertson said. “Increasing interest rates would do more harm than good.”
The BRC report, which is compiled in conjunction with accountancy firm KPMG LLP, measures changes in the actual value of retail sales and doesn’t adjust for price changes.