Thursday 18 December 2014

Retail sales are bouncing back but there's still reason for worry

Published 08/08/2014 | 02:30

Prices in UK shops fell by a record in July, indicating inflation pressure remained subdued as Bank of England officials began their monthly policy meeting.

The British Retail Consortium (BRC) said that prices at stores fell an annual 1.9pc, the most since the series began in 2006. Food-price inflation slowed to a record low of 0.3pc from 0.6pc.

"This is great news for households who are benefiting from fierce competition within the industry," said BRC's director general Helen Dickinson.

"Against a backdrop of stable commodity markets, the stronger sterling making imports cheaper and wavering retail spending, current levels of deflation are expected to continue."

This comes just days after new figures showed retail sales in the euro zone rose at the fastest rate in seven years in June - and twice as fast as expected - thanks to strong sales of both food and non-food products.

Compared with the same period last year, the volume of retail sales in the 18 countries sharing the euro surged by 2.4pc after a downwardly revised 0.6pc rise in May, posting its strongest growth since March 2007.

The annual rise was driven by a 3pc increase in sales of non-food products such as electronics, computers, books or textiles, followed by a 2pc increase in the volume of sales of food, drinks and tobacco.

The bloc's two largest economies - Germany and France - both saw retail sales rise at the fastest pace, year-on-year, since February 2011.

Analysts saw modestly improving labour markets in most countries and very low consumer price inflation providing some support to consumer spending over the coming months, which will help the euro zone recovery to gradually gain traction.

Earlier this week a separate survey showed euro zone business expanded at the second-fastest pace in three years last month as a buoyant service industry offset a lacklustre performance in manufacturing.

But while industry confidence rose on optimism about future production, confidence in the services sector declined as demand expectations weakened.

Worries about jobs and the economic outlook also hit consumer confidence.

Reinforcing those fears, it was revealed this week that Italy returned to recession in the second quarter and German factory orders dropped the most since 2011 as slowing global growth and political tensions threaten the euro area's recovery, despite joblessness falling in June to its lowest level since September 2012 and inflation remaining in the 'danger zone' of below 1pc.

"July's second successive dip in confidence reinforces suspicion that euro zone consumers are generally likely to be pretty careful in their spending for the time being," said Howard Archer, chief European economist at IHS.

And there are clear signs that demand is being affected in some quarters.

Moet Hennessy, Louis Vuitton, Prada and Hermes International have all reported slower sales growth amid weaker consumption in Asia.

(Bloomberg and Reuters)

Irish Independent

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