British Retail Sales Unexpectedly Declined 0.7% in October

U.K. retail sales unexpectedly fell in October as consumers reduced spending on household appliances, clothing and automotive fuel.

Sales including fuel dropped 0.7 percent from September, when they rose 0.6 percent, the Office for National Statistics said today in London. The median forecast of 19 economists in a Bloomberg News survey was for no change in sales. The drop was partly due to a slump in clothes sales as warm weather prompted consumers to put off buying winter wear.

The report underscores the challenges facing households as prices continue to rise three times faster than wages. While the Bank of England raised its growth forecasts yesterday, Governor Mark Carney said interest rates would remain at a record-low 0.5 percent until officials were sure the recovery was secure.

“For the next few quarters, weak pay will probably keep retail spending growth contained and mean this is a solid rather than spectacular recovery,” said Rob Wood, an economist at Berenberg Bank in London. “We expect households to continue saving less and less over the next few quarters keeping the economy growing, and next year the weakness in real pay should change with inflation falling.”

The pound fell against the dollar after the data were released and was trading at $1.6001 as of 11:10 a.m. London time, down 0.4 percent on the day. The yield on the 10-year U.K. government bond declined two basis points to 2.78 percent.

Clothing Sales

From a year earlier, retail sales rose 1.8 percent. Excluding fuel, sales fell 0.6 percent from September and were up 2.3 percent from a year earlier.

Total sales in the three months through October were unchanged versus the previous quarter, the weakest reading for eight months.

Declines over the month were led by a 2.8 percent drop in textiles, clothing and footwear, the ONS said. Food sales fell 0.1 percent.

Sales of household goods dropped 1.2 percent, led by electrical appliances such as fridges and music and video recording gear. Sales of furniture were flat. There were gains in sales of carpets, paint and DIY goods. Sales of watches and jewelry rose as consumers began shopping for Christmas, the ONS said.

Sales of auto fuel fell 2.1 percent on the month. The price of fuel dropped 2.8 percent, the biggest decline in 16 months. That caused a 0.2 percent fall in overall prices as measured by the retail sales deflator. On the year the overall deflator slowed to 0.7 percent from 0.9 percent in September.

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