Retail sales: UK shoppers flash their cash, but only slightly

18th August 2011

Sales, excluding petrol, rose just 0.2% in July, a slowdown on the 0.8% increase in June, according to the Office for National Statistics (ONS).

BBC News reported "consumer spending continues be affected by a number of factors, includinghigher inflation, job losses and limited wage rises".

Inflation in July, measured by the government's preferred Consumer Prices Index, increased to 4.4% from 4.2% in June;  more than double the 2% target rate.'

According to The Financial Times the sales volumes were slightly below economists' expectations.

It added: "Year on year, the seasonally adjusted value of retail sales – which takes account of price changes – rose 4.3 per cent, up from 4.0 per cent year on year in June, when several of the nation's largest department store chains brought forward the start of their summer sales."

"The implied deflator – a number which tries to take account of rising prices – rose by 3.1 per cent when petrol prices are stripped out, the highest year-on-year increase since October 1995."

Colin Ellis, economist at the British Venture Capital Association, told the FT that retail sales account for about 40 per cent of UK consumption and that the data suggest that households were still keeping a close eye on their spending, he also warned that with large rises in gas and electricity prices looming, "consumer caution could be set to intensify in the months ahead."

Simon Ward , chief economist at Henderson predicted that inflation would drop over the next 12 months but  CPI inflation will remain above the 2% target through the end of 2012 and probably beyond.

"This overshoot implies a probably-permanent loss of purchasing power for savers who mistakenly based their investment decisions on an assumption that the MPC would fulfil its remit."


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