August fall in retail sales means GDP growth likely to be flat

Retail sales fell by 0.2 per cent in August from July, in line with expectations, according to the latest index released by the Office for National Statistics (ONS).

The latest data confirms that consumer confidence is very low and that conditions on the high street remain very challenging.

However, the figures are slightly better than some earlier estimates suggested. The British Retail Consortium, who predicted that like-for-like sales were down by 0.6 per cent from one year ago.

Although the slight dip in retail sales was not a surprise, it is nevertheless a further blow to economic growth prospects in the UK. The government is desperately looking for any signs of growth and consumer spending is a vital factor in this. Any decline will impact on the third quarter growth figures that will come out in October.

Howard Archer, Chief UK & European Economist for IHS Global Insight said: “Given that total consumer spending accounts for around 65% of GDP and consumer spending on services appears to be muted, soft retail sales does not bode well for overall GDP growth prospects in the third quarter.”

The fall in retail sales is also likely to increase pressure on the Bank of England’s Monetary Policy Committee (MPC) to provide further quantitative easing in a bid to help kick-start the economy.

The main factors in the economy overall that have led to the fall in retail sales are a lack of consumer confidence, rising unemployment and a fairly flat housing market.

The value of retail sales remained flat between July and August. Compared to this time last year, there was no increase in the amount of sales from August 2010, though the value of sales was up by 4.7 per cent, in line with inflation.

It is not thought that the riots in the UK in August had a major impact, though they would have had a minor impact on the overall figures.

The biggest contributor to sales came from non-store retailing which provided a year-on-year increase of 13.7 per cent, with fuel sales providing an uplift in this area.

The largest factor dragging retail sales down year-on-year came from non-food stores which fell by 1.2 per cent. The biggest contributing factor for a fall in retail sales came from household goods stores which fell by 4.1 per cent.

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