High street sales rise against expectations, but caution urged

Published on Thursday 21 August 2008 21:41

RETAIL sales in the UK have confounded analysts' expectations, increasing last month despite one of the highest levels of price increases in almost a decade.

Sales in July rose 0.8 per cent – exceeding the 0.3 per cent decline expected for the period, according to figures from the Office of National Statistics, ONS.

Year on year, sales were 2.1 per cent higher, the lowest rate since February 2006 but still stronger than surveys from groups such as the British Retail Consortium and the Confederation of British Industry were forecasting.

But experts yesterday claimed that the numbers did not "reflect reality", and warned the public "not to be fooled" by the upbeat news.

The latest figure is significantly higher than Scotland's year-on-year rise of 0.5 per cent, which was revealed by the Scottish Retail Consortium this week.

One reason for the disparity could be the strong rise in online shopping, which is captured more fully in the official data.

The figures showed that discount food stores and cheaper product lines had been doing particularly well, probably as consumers change their behaviour in response to soaring food and fuel prices.

Overall, retail prices were on average 1.6 per cent higher than a year ago, the biggest jump since May 1998. Food inflation surged to 6.2 per cent – its fastest increase since March 1992.

Richard Hyman, strategic adviser to the retail practice at Deloitte, said: "Don't be fooled by the inevitable ebbs and flows of the statistics.

"Whether one looks at major retailers at the value and luxury ends of the market or in the middle, it is crystal clear that everyone is feeling the pinch and no-one is immune."

He added: "For retailers, the gap between cost and sales growth is getting increasingly uncomfortable. Given the difficulty in persuading people to spend more, there is a compelling need to revisit cost models."

However, Geoffrey Dicks, an economist at Royal Bank of Scotland, said: "Despite an intensifying squeeze on household budgets, the UK consumer is down but by no means out."