U.K. retail sales fell more than economists forecast in February as households curtailed spending after a weaker-than-estimated increase the previous month.
Sales including fuel fell 0.8 percent from January, the most in nine months, the Office for National Statistics said today in London. Economists forecast a 0.5 percent decline, according to the median of 23 estimates in a Bloomberg News survey. The increase in January was revised to 0.3 percent from 0.9 percent.
Chancellor of the Exchequer George Osborne said yesterday that Britain will avoid another recession as he announced an increase in the threshold before workers begin paying income tax. Still, inflation that is outpacing wage growth and rising unemployment may curtail any increase in consumer demand and weigh on the economy’s recovery from a 0.2 percent drop in gross domestic product in the fourth quarter.
“The data puts a real dent in hopes that the consumer may be perking up appreciably and tempers hopes that GDP will see a relatively decent return to growth in the first quarter,” Howard Archer, an economist at IHS Global Insight in London, said in a research note. “The concern is that consumers will be cautious in their spending for some time to come.”
The pound extended its drop against the dollar after the data were published, falling 0.2 percent. The currency traded at $1.5799 as of 10:58 a.m. in London.
From a year earlier, retail sales were up 1 percent in February, the statistics office said. The annual increase in January was revised to 1.4 percent from 2 percent, which the statistics office said was due to the late arrival of data from smaller stores. In the three months through February, sales were up 0.7 percent compared with the previous three months.
Excluding fuel, retail sales fell 0.8 percent in February from January and increased 1 percent from a year earlier.
Food sales fell 0.1 percent in February from the previous month, clothes sales declined 1.2 percent and household goods sales dropped 1 percent. Sales in the other stores category plunged 3 percent, driven by specialty stores such as fine arts and antiques.
The Office for Budget Responsibility, the government’s fiscal watchdog, said yesterday it expects Britain’s economy to grow 0.3 percent in the current quarter.
James Knightley, an economist at ING Group in London, said the retail-sales data add to evidence that growth expectations for the first quarter “are probably going to have to be lowered towards 0.1 percent rather than something closer to 0.2 percent or 0.3 percent.”
A revival in household spending may be curtailed by concerns that unemployment may increase. Jobless claims rose more than economists forecast in February, and a broader measure of unemployment remained at the highest level in 16 years, according to data released March 14.
Debenhams Plc, the U.K.’s second-largest department-store company, reported stronger sales growth on March 20 as customers sought bargains in the post-holiday clearance. Chief Executive Officer Michael Sharp said the company is “cautious about the health of the wider economy and the impact this may have on consumer behavior.”
Justin King, chief executive officer of supermarket chain J. Sainsbury Plc, said yesterday that the economic climate is “likely to remain challenging.”
The Bank of England, which increased its bond-purchase target by 50 billion pounds ($79 billion) to 325 billion pounds in February, kept it at that level on March 8. It said yesterday there are “significant risks to economic activity” and noted that higher borrowing costs and oil prices “might make households less confident.”
Policy makers Adam Posen and David Miles voted to increase stimulus this month, saying it was “warranted to reduce the risk that persistently weak growth would damage the future supply capacity of the economy.” Others, including Martin Weale, have pointed to upside risks to inflation in their argument for not expanding stimulus.
U.K. consumer-price growth slowed to a 15-month low of 3.4 percent in February, data this week showed. That’s still above the central bank’s 2 percent target and compares with annual wage growth of 1.4 percent in the quarter through January.
The statistics office said the retail-sales deflator, a measure of annual price changes rose to 2.4 percent in February from 2.2 percent in January, the first increase in six months. Excluding auto fuel, the deflator rose to 1.9 percent from 1.8 percent.