The Gloomy Picture of Britain’s Economy

Posted on 12 November, 2011 by MOVEHUT

Sales at UK clothing and footwear commercial property retailers plummeted during the month of October, adding weight to the uncertainty that Britain will follow the euro zone into a possible recession through the winter. Economists urge that another £1tn may need to be added into the economy.

The British Retail Consortium data showed that sales values for October 2011 were down 0.6% on a like-for-like basis from October 2010.

From September, payments on furniture, clothes and other non-food items in commercial properties, declined by 1.8%. On the other hand food held up with 1.8% growth, according to the British Retail Consortium/KPMG Index. The weighted index registered on the whole a rise of 0.3% since the month of September and 1.5% over the last year.

Visa, which analysed 1.4n transactions to create its consumer spending report, showed consumers stayed at home in the month of October despite the unseasonally warm weather.

Visa reported hopes of a rebound during Christmas are weakening as households deal with with higher fuel bills and the prospect of higher unemployment over the next year.

The bleak picture of Britain’s economy, which has depended on strong consumer spending to encourage investment and growth, will put pressure on the chancellor of the Exchequer George Osborne to declare extra government support for the economy in his autumn statement later this month.

Economic Consultant, Fathom Consulting, advised that the Bank of England may need to add £1tn into the economy in its quantitative easing programme if Italy is forced out of the euro and the currency club splits.  It said the UK, which is expected to contract over the next six months, would be badly hit by a ‘euro implosion’ and would need the current £273bn QE programme to be around four times larger to avoid a deflationary spiral.

Stephen Robertson, director general of the British Retail Consortium said: “Which part of the wave we’re riding varies from month to month but the water is consistently chilly. For a firth month, total sales growth continues its strangely regular flip-flopping between 2.5% and 1.5%.


He continues to add: “But the year to date figure, whichsmoothes out these minor moves, is unchanged from the previous month. This is evidence of the basic weakness of consumer confidence and demand worrying this close to Christmas.”

Resisting the trend, online sales for October picked up a little after an insignificant fall in September. Consumer spending was up 11.5% on a year ago, more than the 10.1% in September but lower than in August.

Robertson commented: “Online sales growth is up on September and still beating store sales performance by a wide margin, but mounting pressure on customers’ disposable incomes has noticeably weakened the underlying pace of that growth.”

He further added: “In the 12 months to this October it averaged 12.1 per cent, noticeably less than the 17.2 per cent over the 12 months before that. The basic expansion of internet shopping continues but sales values are not rising as quickly as they were because customers don’t have the money available and, even where they do, are less likely to buy goods that aren’t on special offer.”

The British Retail Consortium warned that sales were “worryingly weak as Christmas nears” and blamed the pessimistic economic outlook.  Director General Stephen Robertson commented: “Underneath the headline figure, the year-to-date results show almost no growth in non-food sales. Allowing for the VAT rise since last year, that suggests, a substantial drop in sales volumes while the food figures indicate very little volume growth. Its clear customers are cutting back whatever they’re buying.”

Robertson urged the chancellor to look at the tax burden on households and commercial property businesses to encourage growth in 2012.

He added: “A lasting lift in consumers’ mood needs a sense that better times will come for jobs, cost and incomes. The Chancellor should use this month’s autumn statement to help customers and businesses by offering hope over next year’s planned fuel duty and business rates increases.”

Doubtful prospects for personal finances and the economy are being blamed for the drop in sales. To put it quite simply shoppers are giving priority to essentials over discretionary items.

Head of retail at KPMG, Helen Dickinson, added: “With so much uncertainty across European and global markets, UK consumers remain reticent as their personal finances become harder to manage.

“The beginning of the month continued with the trend we saw at the end of September: the warm weather helped to boost food sales to the detriment of clothing and other non-food sectors. By the end of the month the gap narrowed, food growth slowed and non-food retrieved some of the momentum lost over the previous few weeks.

Dickinson further commented: “To whatever extent sales are being made, margins and hence profits are being impacted to stimulate demand as retailers strive to cope with the new reality. The success of the Christmas season for retailers hangs in the balance as October’s results do not set a strong foundation.”

Marks and Spencer, Britain’s biggest retail commercial property highlighted the pressure the retail sector is facing after posting an 8.1% drop in first-half pre-tax profit to GBP320.5m (US$374m).

The commercial property retailer increased its promotions on the back of the “challenging economic environment” with UK like-for-like sales down 1.3%.

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