Feb 10, 2010
Retail sales drop in January
Feb 10, 2010
By David Milliken and Sumeet Desai
LONDON (Reuters) - Retail sales recorded their worst January performance for at least 15 years and the goods trade gap widened unexpectedly in December, in data that highlights the uncertain shape of the recovery.
Economists said Tuesday 9 February's weak figures might have been partly due to temporary factors, with heavy snow discouraging shoppers and a car scrappage scheme boosting demand for imports, but were nonethless a cause for concern.
The pound fell to a three-week low of 88.09 pence versus the euro after the data.
The snow also resulted in a sharp drop in new home-buyer enquiries in the Royal Institution of Chartered Surveyors' monthly survey, yet house prices still rose.
Policymakers had hoped that exports would lead the country out of its deepest recession in decades, rebalancing an economy that had previously been reliant on rapid house price rises and consumer spending.
"It is disappointing that imports of traded goods rose more than exports, and it does raise questions as to whether or not net trade can make a decent positive contribution to growth going forward and help the economy to rebalance," said Howard Archer, economist at IHS Global Insight.
The goods trade deficit with the rest of the world unexpectedly widened to 7.278 billion pounds, its highest since January 2009, after imports from non-EU countries shot up at their fastest rate since March 2005.
Some 300 million pounds of a roughly 1 billion pound increase in imports was oil-related, and another 225 million was linked to the aerospace sector, which is typically volatile.
A further hit came from government incentives to scrap second-hand cars, which have lifted imports of new cars but are due to expire next month unless extended.
"We are likely to see some improvement in the trade balance as the boost to imports fades," said Hetal Mehta, economist for the Ernst & Young ITEM Club.
For 2009 as a whole the goods trade deficit narrowed by 11.5 billion pounds to 81.9 billion pounds, the first time since 1997 that the full-year deficit has fallen, albeit off the back of a sharp fall in total trade.
Sterling has fallen by more than 20 percent on a trade-weighted basis since mid 2007, but economists said the boost to exports would remain limited until European demand improved.
The picture was no brighter for retail sales in January. The British Retail Consortium said the value of sales last month was 0.7 percent lower than a year ago when measured on a like-for-like basis, following an unusually strong 4.2 percent annual rise in December.
"An awful start to the year and in stark contrast to an upbeat December. This is the worst January sales growth in the 15 years we have been running the survey," said Stephen Robertson, director general of the BRC.
He said the snow at the start of the month had increased food sales but hit other sectors. Some consumers may also have brought forward their purchases to December to beat the return of value-added tax to 17.5 percent on Jan 1 after a cut to 15 percent for 2009.
Total sales, which include new floorspace, rose by 1.2 percent on the year in January.
Property prices -- which some economists view as a leading indicator for British retail sales -- picked up pace in January, even though Britain's harshest cold snap in 30 years led to a sharp drop in new buyer enquiries.
The Royal Institution of Chartered Surveyors said its monthly house price balance -- which represents the net percentage of surveyors who report higher rather than lower house prices -- rose to +32 in January from +30 in December.
That was well above the consensus forecast of +28 and not far from November's three-year high of +35.
A combination of record low interest rates and tight supply has helped house prices recover almost half of their August 2007-April 2009 decline, according to mortgage lender Halifax which reported a seventh consecutive rise in prices in January.
(Additional reporting by Christina Fincher)
(Editing by Susan Fenton)
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