Retail sales hit as consumers tighten purse strings amid dearer petrol and food

February 17 2017, 10.03amUpdated: February 19 2017, 9.15am
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Retail sales unexpectedly fell last month as a jump in food and fuel prices squeezed consumer spending power at the start of the year.

The Office for National Statistics said month-on-month retail sales fell by 0.3% in January, compared with a revised 2.1% drop in December.

Economists had been predicting growth of 1% over the period.

The drop came as petrol station prices leapt 16.1% year on year in January, helping to push average store prices – including fuel – 1.9% higher.

At food stores, average prices increased by 0.5% on the month, its largest rise since April 2013.

The amount bought in food stores fell 0.2% annually, while average prices rose by 0.2% over the period.

Kate Davies, ONS senior statistician, said: “We have seen falls in month-on-month seasonally adjusted retail sales, both in conventional stores and online, and the evidence suggests that increased prices in fuel and food are significant factors in this slowdown.”

The pound deepened its losses against the greenback after retail sales missed expectations, dropping 0.5% to 1.241 US dollars. Sterling was also 0.3% lower versus the euro at 1.166.

In contrast to January last year, retail sales eked out its lowest growth since November 2013, expanding by 1.5%.

The ONS said retail sales had also dropped for the first time since December 2013 in the three months to January, easing back by 0.4%.

Online sales – which accounted for around 14.6% of all retail spending – lifted by 10.1% on the year, but sank 7.2% on the month.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures suggested the widely predicted post-Brexit vote economic slowdown was now occurring .

“The economy’s persistent resilience since last June’s Brexit vote has been largely built on consumers keeping on spending ,” he said.

“If consumers really are now beginning to moderate their spending, the long-anticipated slowdown in the economy may be about to materialise.

“Consumer fundamentals remained largely healthy until recently, but purchasing power is now being meaningfully squeezed by markedly rising inflation.

“This was reinforced by a dip in earnings growth in December.”

Inflation reached a two-and-a-half-year high in January at 1.8% after more expensive food and fuel bumped up the overall cost of living.

Ballooning import prices triggered by the Brexit-hit pound are a key factor behind the rise in everyday prices as companies pass their soaring costs to consumers.

The Bank of England expects inflation to lift to its 2% target in February, peaking at 2.8% in the first half of next year, before falling back to 2.4% in three years’ time.

Alan Clarke, head of European fixed income strategy at Scotiabank, said it was the second consecutive month that retail sales were weaker than expected.

“The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes.

“But I don’t think anyone would have expected the pace of spending to have suffered so much so soon.

“This is a micro demonstration of what is likely to be happening to the consumer over the whole of 2017.”

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