Recession fears grow as July retail sales growth shrinks to paltry 0.2%

LIMPING sales growth in the high street yesterday added to a flurry of depressing economic data, triggering fresh fears of economic stagnation or even double-dip recession.

Retail sales volumes edged up just 0.2 per cent in July, compared to a revised 0.8 per cent boost in June, the Office for National Statistics said.

City economists had expected a 0.4 per cent rise, and the lower figure fuelled growing gloom in the stock market about UK economic prospects.

The retail figures followed high inflation figures earlier this week, and a greater rise in UK unemployment than had been expected, alongside virtually flat German economic growth.

Samuel Tombs, economist with Capital Economics, said: "The markets are almost catching up with the bad news. The economic outlook seems to have worsened in the past few months. These retail figures are pretty weak and there are some worrying underlying trends. The 0.2 per cent rise was entirely driven by food sales, if you exclude those then volumes fell 0.1 per cent."

It sparked a warning yesterday from British Retail Consortium director general Stephen Robertson that politicians needed to act quickly to restore consumer and business confidence as "customers' ability to spend is being squeezed by rising costs, particularly utilities and low wage rises".

Robertson said: "Global economic fears are mounting. Policymakers in Europe and the US must act quickly to implement a co-ordinated and credible strategy to reduce public sector deficits while supporting growth. Business and consumer confidence needs to be restored quickly."

Household good stores, clothing and footwear shops, and non-store retailing, which includes internet and mail order sales, all suffered as cash-strapped consumers reined in their spending last month. City economists said that earlier discounting by retailers brought forward sales from July to June.

The retail sector has suffered as household budgets have been squeezed by muted wage growth and high inflation, which the Bank of England (BoE) disclosed this week hit 4.4 per cent in July, up from 4.2 per cent the previous month.

The central bank has forecast that inflation will climb to 5 per cent later this year before falling over the next two years. Despite high inflation the BoE has held off from raising interest rates from historic lows amid Britain's fragile economic recovery.Chris Williamson, chief economist at financial services information company Markit, said weak spending in the third quarter heightened the risk of a double-dip recession.

"With consumer spending accounting for around two-thirds of the economy, the weak retail sales data suggest that economic growth remained very subdued at the start of the third quarter and highlight how close the UK economy is to sliding back into recession," Williamson said.