Sales drop as hard-pressed shoppers cut back on food

The 1.3 per cent fall in spending in food stores in July was the first decline in 25 years. Picture: Phil Wilkinson

The 1.3 per cent fall in spending in food stores in July was the first decline in 25 years. Picture: Phil Wilkinson

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Price wars and the lack of wage growth finally caught up with Britain’s retailers last month as official figures showed food spending was down year-on-year for the first time on record in July.

The 1.3 per cent fall in spending in food stores in July was the first decline in 25 years, according to the Office for National Statistics (ONS). However, food stores were the only sector to show an increase in prices, of 0.2 per cent.

Overall, retail sales rose by 2.6 per cent in July, up marginally from June, but well below the high of 6.2 per cent seen in April this year.

Experts warned that the figures painted a worrying picture for major food retailers, which have witnessed falling sales and been forced to adapt their offering in a bid to win the consumer pound.

Rob Harbron, senior economist at the Centre for Economics and Business Research, said: “Although year-on-year volume declines in food stores are not unusual, the latest results also showed an annual drop in cash terms as well, falling back by 1.3 per cent.

“This is the first time that this has happened in food stores since comparable data began in 1989.”

Earlier this year, Morrisons issued two profit warnings in just three months – sending shares in all of the major supermarkets plummeting – while Tesco also saw its profits fall for the second year in a row.

Morrisons said it had been forced to slash prices to compete with discount retailers such as Aldi and Lidl.

Analysis group Springboard said this weekend also looked set to be a difficult one for retailers, as the bank holiday south of the Border will fall before most people’s payday.

However, yesterday’s retail sales data revealed that online shopping continued to grow in July, edging upwards by 11.2 per cent compared with the same month last year – but decreased by 1.9 per cent compared with June.

The weaker-than-expected figures will potentially dampen fears that the Bank of England could raise interest rates in the near future.

Harbron said: “A more measured rate of growth is expected for 2015 and the following few years, as households continue to face relatively sluggish real wage growth, the Bank of England starts to tighten monetary policy, and the government is required to make sharp fiscal cuts to bring the deficit under control.”

The ONS also released figures showing that government borrowing finally slowed in July, although it is a month when traditionally the Exchequer does well. Public sector net borrowing excluding bank bail-outs was just £200 million in July, down from £1 billion a year earlier.

But statisticians said the cumulative “year to date” borrowing figures provided a better indication of the progress of the public finances. The government has borrowed £32.4bn since April, compared with £23bn for the same period a year earlier.

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