Retail sector hit as sales slump in January

Retail sector hit as sales slump in January

	Published : Thu, 16 Feb 2006 20:05 By : Paula Demarzio Print this Story

LONDON - An unexpected slump in retail sales in January has put more pressure on the Bank of England to take urgent action and cull the interest rates in the forthcoming months. The Office of National Statistics reported today that sales in January fell by 1.3 percent as compared to December last year.

This figure represents the first fall in sales since July last year and the biggest after December 2004, when sales had fallen by 1.6 percent. Household goods stores were the worst hit with a fall of 3.0 percent. The slump affected all sectors except non-store retailing, according to the ONS.

On top of this gloomy news, the Bank of England released its quarterly Inflation Report yesterday, which has puzzled analysts with its predictions of an imminent increase in consumer spending. However, analysts say that the report is wishful thinking and the economic growth is likely to remain in the bottom half.

"This is a really stunning retreat in retail sales. It reinforces our belief that the Bank of England is too optimistic about consumer spending, " said Howard Archer, chief UK economist at Global Insight. "Furthermore, the decline in sales occurred even though a 1.2 per cent year-on-year decline in prices indicates that retailers continued to strongly discount to encourage consumers to keep spending."

He added that the rising unemployment levels combined with an increase in utility bills like that of gas would ensure that consumers tightened on their spending. However John Butler, chief UK economist at HSBC elected to adopt a cautionary note saying that retail sales at the beginning of the year were always volatile, "With households seeing employment fall and disposable income squeezed, it is far from clear in our view that the weak consumer environment has passed.

The February retail sales number will be incredibly important," he observed. The Bank of England had ignored appeals to cut the interest rates and had held them steady at 4.5 percent for the sixth consecutive month in February. But these figures must prompt the MPC members to put on their thinking hats.