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UK retail sales fall, finances weak

Thursday, August 21 11:33:02

British retail sales grew in July at the slowest annual rate since November last year, while the government failed to make major inroads into a looming overshoot in public borrowing, data showed today.

The figures add to signs that Britain's consumer-led recovery might be starting to slow, and leave the government with a lot of catching up to do if it is to meet full-year borrowing targets in the run-up to May's national election.

Monthly growth in retail sales volumes unexpectedly fell to just 0.1 percent in July, down from 0.2 percent in June and bucking forecasts for a rise to 0.4 percent.

Annual growth in the volume of goods sold dropped to 2.6 percent, the weakest since November last year and again below forecast, despite prices falling at their fastest rate in almost five years, giving consumers more for their money.

Sterling dipped slightly against the dollar after the data, while British government bonds were unmoved.

"Today's release provides further evidence that economic expansion in the UK is slowing," said Rob Harbron, senior economist at economics consultancy CEBR.

"A more measured rate of growth is expected ... as households continue to face relatively sluggish real wage growth, the Bank of England starts to tighten monetary policy, and the government is required to make sharp fiscal cuts to bring the deficit under control," he added.

Government finances data showed an unexpected deficit in July for the second year running, continuing the weak start to this tax year, which is partly due to one-off effects but leaves the government reliant on a big upturn in income tax receipts to meet its fiscal goals.

Bank of England policymakers were split over raising interest rates for the first time in three years earlier this month, according to minutes on Wednesday.

The ONS said the biggest downward pressure on retail sales came from non-store retailing and petrol stations, and some economists said the retail data looked healthier once fuel sales and monthly volatility were stripped out.

Britain's consumers have been the main driver of the country's economic recovery which began last year, helped in part by low inflation that has eased the pressure on their spending power.

Wage growth, however, remains very weak and increased spending has been funded in part by households cutting back on how much they save.

Prices in stores fell 0.9 percent on the year after being flat in June, the biggest decline since August 2009, the ONS said. However household budgets are squeezed by higher prices for other goods and services, with the broader consumer price inflation measure rising by 1.6 percent in July.

A survey from the British retail Consortium earlier this month showed British annual retail sales growth quickened in July.

The ONS said public sector finances, excluding financial sector interventions, showed a deficit of 239 million pounds compared with a deficit 1.047 billion in July 2013. Economists polled by Reuters had expected a small surplus of 50 million pounds, as July normally sees big inflows of tax revenue.

"The government borrowing numbers are far more disappointing (than the retail sales data)," said ING economist James Knightley, adding that they will make the government's full-year borrowing goals hard to meet.

The government aims to reduce public sector net borrowing, excluding financial sector interventions and some other factors, by 9.7 percent to 95.6 billion pounds in the year ending March.

But borrowing on this measure for the tax year to date is 5.1 percent higher than the same period in 2013, largely reflecting a poor first three months of the fiscal year. For July alone, borrowing on this measure was down to 0.8 billion pounds from 1.6 billion in July 2013.

A government spokesman said the greater year-to-date borrowing was due to a different pattern of receipts compared to 2013, when extra revenue came early in the year from a deal to recoup tax evaded by British nationals with bank accounts in Switzerland.

The government said it was banking on a big rise in income tax receipts in January to help meet its goal to halve British borrowing as a percentage of gross domestic product over the course of a five-year parliament. (Reuters)

For more visit: www.businessworld.ie