UK retail sales suffer biggest three-monthly drop since 2010 as fuel costs bite

Shoppers at Oxford Street in London.
Shoppers at Oxford Street in London. PHOTO: REUTERS

LONDON (REUTERS) - British retail sales in the three months to February recorded their biggest slide in nearly seven years as higher fuel prices eroded shoppers' disposable income, official data showed on Thursday (March 23).

British inflation is starting to climb rapidly in the wake of the hefty slide in sterling seen after June's vote to leave the European Union - something economists expect to eat into consumer demand, the main motor of British economic growth.

Sales volumes in February alone beat all economists' expectations in a Reuters poll, jumping by 1.4 per cent from January, but this was too little to offset a drag from weak demand in previous months, the Office for National Statistics (ONS) said.

Looking at the three months to February as a whole, sales volumes were down by 1.4 per cent after a 0.5 per cent decline in the three months to January, their biggest fall since March 2010. A drag on overall first-quarter economic growth now looks all but certain unless March sees an unprecedentedly large jump in sales, the ONS said.

Official data earlier this week showed consumer price inflation jumped to 2.3 per cent, its highest in more than three years, and the narrower measure of inflation used by the ONS to calculate retail sales growth rose to its highest since March 2012 at 2.8 per cent.

"The underlying trend suggests that rising petrol prices in particular have had a negative effect on the overall quantity of goods bought over the last three months," ONS statistician Kate Davies said.

Compared with a year earlier, February sales volumes were up 3.7 per cent - beating forecasts for a 2.6 per cent rise - after growing just 1.0 per cent on the year in January.

The outlook for consumer spending is key for policymakers gauging the outlook for Britain's economy as it gears up to leave the European Union.

Spending by shoppers was robust in the months following June's Brexit vote, but more recently there have been signs that retail spending is starting to wilt as inflation rises - fuelled partly by the pound's plunge since the referendum.

Retailers have reported shoppers were buying less in response to higher prices, though the picture is mixed and other areas of consumer spending such as eating out have been growing robustly, a Bank of England report showed on Wednesday (March 22).

On Thursday, one of Britain's biggest clothing retailers, Next, said it was "extremely cautious" about the year ahead after it reported a 4 per cent fall in annual profits.

The retailer blamed a long-term shift in Britons' appetite for new clothing, as well as cost pressures and shoppers having less disposable income.

By contrast, a day earlier, the finance chief of home improvements retailer Kingfisher, Ms Karen Witts, said she had not yet seen any big change in customer behaviour, despite concerns about the outlook.

Lead indicators of demand such as the number of tradesmen buying costly power tools and work wear were holding up very well, she said after Kingfisher released annual earnings on Wednesday.