High street feels chill as consumers cut out frills

FEARS over how government spending cuts will affect household budgets triggered a sharp slump in high street sales growth last month, figures today reveal.

Nervous consumers cut back on frivolous buys and focused purely on the essentials - a trend which economists fear could snowball into a full-blown high street slowdown towards the end of the year.

According to the latest report from the British Retail Consortium (BRC), retail sales grew by just 0.5 per cent in July, a steep decrease from June's 1.2 per cent jump and the worst performance since April.

Analysts had forecast a healthier reading due to "decent" summer sales and the expectation that retailers would be lifted by the latter stages of the football World Cup.

Homewares and "big ticket" items such as washing machines, televisions and fridges were among the worst-hit categories. This is likely to heighten concerns over a fresh high street slump as big ticket sales are usually the first to dip in the event of a major slowdown.

Furniture and floor sales also suffered large year-on-year declines.

While food sales were up compared to July 2009, the statistics in this category were flattered by weak growth the previous year, the BRC warned.

Stephen Robertson, director-general of the consortium, said: "Talk of public spending cuts is unsettling customers and they are concentrating on essentials.

"It's clear the recovery continues to need support."

The BRC data, which offers the first insight into how the high street fared last month, backs up warnings from a string of retailers last week over the second half of the year.

Simon Wolfson, chief executive of Next, raised the spectre of another bleak winter on for retailers when he warned sales would be "difficult for the foreseeable future".

Although few analysts would be so pessimistic as to predict a double-dip recession on the high street, expectations are growing that retailers will suffer at least a moderate slowdown as households sit out the effects of government austerity measures.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Consumer confidence is certainly weak, falling to a 12-month low in July as consumers' concerns about the economy, jobs and their personal financial situations were heightened by the extra fiscal tightening measures announced in June's emergency budget.

"The substantial fiscal squeeze will increasingly hit public sector jobs and consumers' pockets, while households already face high unemployment, muted earnings growth, elevated debt levels and high fuel prices."

Among the other surprise findings of today's research is a near one-year low in internet, mail order and phone sales, which have held up pretty well despite the recession. Year-on-year growth in this category last month slowed to 11.3 per cent.However, Helen Dickinson, head of retail at KPMG, which co-produced the BRC report, pointed out that at least sales continued to grow in July.

"Spending at least continues to hold up and is likely to continue to do so, at least until the effects of government measures begin to hit people's pockets," she said.

Among last month's highlights were clothing sales which picked up again after recording only marginal growth in June.