UK retail sales suffer September setback

Retail shops on Oxford Street in central London on Aug 18, 2016.
Retail shops on Oxford Street in central London on Aug 18, 2016.PHOTO: AFP

LONDON (REUTERS) - British retail sales fell unexpectedly this month after a strong showing in August, according to a survey published on Tuesday, contrasting with robust figures since June's vote to leave the European Union.

The Confederation of British Industry said its retail sales balance dropped to -8 in September from a six-month high of +9 in August. That was below all forecasts in a Reuters poll of economists though well above the four-year low recorded in July.

Retailers expected sales to recover in October, but still cut orders with suppliers for a sixth month in a row, the CBI said. Looking at the third quarter as a whole, sales suffered their first noticeable fall since the second quarter of 2013.

British retail spending has mostly held up well since June's referendum vote to leave the European Union, with the labour market remaining robust too. However, a sharp fall in the pound is expected to push up prices early next year, eating into households' purchasing power.

"The softer CBI distributive trades survey for September could be a sign that consumers are becoming more careful," said Howard Archer, chief UK economist at IHS Global Insight. "However, it is premature to come to any firm conclusions. The CBI survey may simply indicate that consumers took a breather in September after spending at a robust clip over the summer," he added.

Official data showed retail sales excluding fuel rose at their fastest annual rate since November 2014 in August. Archer said he expected the sector to help drive third-quarter growth.

But there was an ominous sign from building materials supplier Wolseley, which said it was cutting 800 jobs in Britain as it focused on the United States.

"Consumer confidence has been dented since earlier in 2016 and higher inflation is likely to squeeze household incomes over the year ahead. With margins remaining tight, retailers are set to continue to operate in a fiercely competitive environment for some time," CBI chief economist Rain Newton-Smith said.

Sales of clothing and home hardware material enjoyed above average growth, but food and footwear sales dropped.

Retailer John Lewis reported a 4.7 percent drop in sales at its upmarket department stores in the week ending Sept. 24 on Tuesday. But other areas of consumer spending have stayed strong, with travel company Thomas Cook saying bookings had been unaffected by the weaker pound.

The CBI survey was conducted between Aug. 25 and Sept. 14 and was based on responses from 63 retail chains that account for about one third of employment in the sector.