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April 24, 2006 11:45 am
Sales on the high street were stronger than expected last month, but the pace of underlying growth has slowed, casting doubts on the ability of the consumer to drive the economy forward.
However, there was further evidence that the housing market is picking up, after the British Bankers Association said mortgage lending rose in March to £5.4bn, its highest in almost two years.
The volume of retail sales climbed by 0.7 per cent between February and March, according to the Office for National Statistics.
Analysts had forecast an increase of 0.3 per cent and sterling initially gained ground as traders speculated that the robust month-on-month numbers raised the likelihood of a hike in the cost of borrowing.
However, the pound’s gains were curtailed after the data received closer inspection. Sales in February were revised down from growth of 0.5 per cent to 0.3 per cent, which, together with a fall of 1.7 per cent in January, left growth in the first quarter of the year 0.7 per cent lower than in the previous three months.
Compared to 12 months ago, retail sales in March expanded by 2.6 per cent.
The soft underling trend came as little surprise to some analysts, such as Capital Economics, which has warned that consumers remain reticent to spend in the face of rising utility bills and unemployment. This view chimes with Stephen Nickell, the lone dissenter on the Bank of England’s monetary policy committee. Mr Nickell has voted five times in a row for a cut in interest rates, citing concerns that high energy prices, in particular, might hold back consumption growth.
John Butler at HSBC, noted the relationship between a stronger housing market and consumer spending appeared to be deteriorating.
“The bottom line is that retail sales have slowed since the impressive Christmas period, irrespective of the rise in house prices and housing activity. Perhaps the Bank of England’s assertion that higher asset prices will drive a consumer recovery will not hold,” said Mr Butler.
The ONS said the non-store retailing sector, which covers internet sales, grew by 5.3 per cent month-on-month in March, the sharpest pace of expansion since April 2005. Both non-food stores and non-specialised stores grew by 3 per cent.
Retailers’ margins continue to suffer, however. The ONS said the implied deflator - a measure of prices - fell by 1.1 per cent in the year to March.
Separately, official data released on Monday showed that Gordon Brown only just missed his forecast for government borrowing last year.
The Office for National Statistics said the public sector was in the red by £7bn last month, compared with a deficit of £8.5bn for the same period a year earlier. This means that for the fiscal year 2005-2006, the budget deficit was £37.8bn, a tad higher than the £37.1bn Mr Brown forecast in his Budget last month.
Spending by central government in March was £40.6bn, up 3.8 per cent from 12 months ago, For the financial year, spending was £456bn, an increase of 5.5 per cent on the same period the previous year.
Last month government receipts were £39.8bn, up 11.5 per cent on March 2005, which brings the total so far this financial year to £452.8bn, up 7.5 per cent.
The current budget, excluding net capital investment, recorded a deficit of £3.5bn, compared with a deficit of £5.8bn last year. For the financial year, the current budget had a deficit of £10.8bn, against a shortfall of £19bn for 2004-05. Net debt at the end of March was £459bn, or 36.6 per cent of GDP, compared to £419.8bn for the same month in 2005 (35 per cent).
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