Retail sales volumes fell in October for the first time in nine months, according to official figures published on Thursday, providing tentative evidence of a long-awaited slowdown in consumer spending.
The Office for National Statistics reported a 0.1 per cent fall in the volume of retail sales last month compared to September – weaker than consensus expectations of a 0.1 per cent rise. September’s 0.6 per cent rise was revised down to 0.3 per cent. This helped push the annual rate down to 4.4 per cent from 6 per cent.
Karen Ward of HSBC said: “The puzzle of the past year has been the strength of retail sales in a backdrop of weak employment growth and declining real wages. This morning’s data provide at least a tentative sign that consumer spending is slowing.”
The weakness was across the board, reflecting a fall of 0.4 per cent in the usually resilient food spending, while clothing and footwear was down by 0.5 per cent and households goods spending was unchanged.
The only sector in which there was stronger spending was non-store retailing and repair – mainly internet spending – which was up 1.7 per cent on the month.
However, the underlying rate was still solid – the less volatile quarterly rate rose by 1.4 per cent in the three months to October, compared to the previous three months. This was down on September’s quarterly growth rate of 1.6 per cent but was still well above the long-term average of 0.9 per cent.
Sales continued to be helped by heavy discounting with the implied deflator - a measure of high street inflation - down by 1.1 per cent in the year to October. This was down on September’s fall of 1.5 per cent but reflected higher food prices.
The value of retail sales rose by 3.2 per cent over the same period.
Lisa Dillon, director of retail at Ernst & Young, said the figures added up to: “a relatively tough Christmas and an even tougher New Year. “
But Malcolm Barr of JP Morgan cautioned against reading too much into one month’s figures. “After five consecutive monthly gains in sales volumes, a softer month has been due,” he said.
Mervyn King, Bank of England governor, said at the launch of the Bank’s Inflation Repiort on Wednesday that retails sales growth had been “very strong” in recent months.
But Richard McGuire of RBS Capital markets doubted that the retail figures were weak enough to push the Bank into an early interest rate cut. “The underlying trend remains firm, failing to provide convincing evidence the consumer is pulling in his horns on the back of tighter lending criteria and a slowing housing market. While a December rate cut from the Bank is a definite possibility, we continue to look for the first move taking place in January,” he said.
