Annual UK retail sales growth slowed in July to its weakest pace since November last year - a deceleration that may reflect higher interest rates but might be more to do with torrential rain - according to a survey today.
The British Retail Consortium survey shows total retail sales value last month was up 3.1% on July last year - down from an annual pace of increase of 5.1% for June and the weakest outturn since year-on-year growth of 2.5% in November last year.
Taking the latest three months together to smooth out volatility, the annual pace of sales growth edged down to 4.1% in the BRC's report today from a comparable pace of 4.6% in its previous monthly survey.
The BRC has made much of the threat posed to consumer spending by five quarter-point rises in UK base rates since August last year, which have taken them to 5.75%.
Most City economists are predicting a further rise to 6%, as the Bank of England attempts to tackle medium-term inflationary dangers.
While the BRC's July sales figures might indicate its long-running warnings that rate rises are damaging consumer sentiment are finally being realised, the consortium itself acknowledged the impact of awful weather that brought serious flooding in many places.
Food and drink sales were blighted by the poor weather.
Stripping out the beneficial impact of expanded space, to give a measure of how retailers are performing as opposed to the consumer spending indicated by the overall numbers, annual like-for-like growth in sales dropped from 3% in June to 1.2% last month. This was also the weakest pace of increase since last November.
Retailers last month suffered their first overall year-on-year decline in food and drink sales since July 2000 on a like-for-like basis, according to the BRC.
The BRC says: "The decline stemmed from last July's strong comparatives with the heatwave and the (Football) World Cup, against torrential rain and cold winds this July. Seasonal products such as salads, chilled drinks and barbecue foods suffered, though did pick up on the few sunnier weekends."
It adds that food and drink sales were up only "slightly" even on a total rather than like-for-like basis, comparing last month with July 2006.
The BRC survey notes the year-on-year decline in clothing sales in July, on a like-for-like basis, was only marginally less than an annual fall in May which had represented the poorest reading for two years.
The BRC says: "Summer fashions struggled in the atrocious weather and against strong gains in last July's heatwave. Heavy discounts were needed to clear summer clothes, such as shorts, tops and swimwear, but there were welcome gains for jeans, light knitwear and waterproofs."
BRC director-general Kevin Hawkins seized on the survey to renew the industry's plea to the Bank of England not to raise interest rates further.
The Bank's Monetary Policy Committee stood pat on rates last Thursday. More significant clues about the near-term outlook for borrowing costs should come tomorrow with publication of its latest quarterly inflation report.
Hawkins said: "The combination of a tightening squeeze on consumer spending and heavy rainfall reduced like-for-like sales growth to a level not seen since last November, despite heavy discounting and falling retail inflation. Given these conditions, the Bank of England should now wait and see what happens over the next few months before doing anything further with interest rates."
Helen Dickinson, head of retail at accountancy firm and survey sponsor KPMG, said: "They said that July 2006 was the hottest on record and July 2007 the wettest. We are also seeing lower demand growth, given ongoing pressures on disposable incomes. Against this backdrop, the two powerhouses behind UK retail - the food and drink and the clothing and footwear sectors which together account for over half our spending - had a very disappointing month. This is on the back of a similar situation in June. The only reason the overall like-for-like figures for July were not negative was due to spending levels in the remaining sectors holding up."
The BRC survey notes the wet weather boosted footfall in department stores last month "by making shopping more attractive than outdoor pursuits". Elsewhere, there was strong demand for fitted kitchens and bathrooms and bedroom furniture.
Gavin Cameron, the reader in macroeconomics at Oxford University commissioned by the BRC to opine on its survey, echoed Hawkins in urging caution on the monetary policy front.
He said: "After last week's decision by the Bank of England to keep interest rates unchanged, there is some uncertainty about future interest-rate movements. Most forecasters are expecting at least one more rise, probably next month, with some forecasters predicting further rises stretching into next year.
"Having had five rate rises since last summer, economic prospects are equally uncertain. Recent problems in global financial markets threaten to reduce the growth prospects of the UK economy, and there are some signs of a slowdown in the housing market and the high street. There is a danger that a continued rise in oil prices, coupled with firm consumer spending, will lead to more interest-rate rises, while world market turbulence leads to a slowdown in financial services and exports.
"The Bank of England may have to adopt a cautious approach in the next few months in order to avoid monetary overkill. If food and energy price rises can be explained as only temporary aberrations, then the Bank is not obliged to respond with tighter monetary policy."
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