Retail sales slip as spending cuts loom

Retail sales volumes fell last month for the first time since January, in a sign that consumer demand may be slipping ahead of planned government spending cuts, official data showed.

The Office for National Statistics said sales volumes fell 0.5 per cent last month, and revised July's sales growth down to 0.8 per cent from 1.1 per cent.

On the year, retail sales volumes rose just 0.4 per cent - only a fifth of the two per cent that analysts had forecast.

July's annual growth was also revised lower.

The ONS said that July's revisions were amplified because of its annual rebasing of the sales index as well as a review of its seasonal adjustment of the data, which came on top of standard revisions as retailers sent in late sales data.

Falls in sales were broad-based, with declines in food, fuel, clothing and household goods.

One bright spot for the Bank of England – which is worried about above-target inflation – was a fall in the retail sales deflator to 1.5 per cent, its lowest since November.

The fall follows several months of surprisingly strong growth, though some sentiment surveys have been pointing to a weakening of consumer demand ahead of cuts of around 25 per cent to the budgets of most government departments, which are likely to push up public sector unemployment.

Although results of retailers have generally started to improve following the recession, many experts think the sector faces a harsh winter as the government cuts spending and raises taxes to rein in a record public deficit.

Howard Archer of Global Insight said: "The unexpected 0.5 per cent fall in retail sales in August is a nasty shock and deals a significant blow to growth hopes.

"Indeed, it will likely fuel fears of a double dip, given the importance of consumer spending to the economy and the fact that the fall in sales were broad based in August."