Retail sales at 10-month low as VAT hike bites

The fragile state of the British high street is laid bare today in figures that reveal the worst sales performance in almost a year.

Like-for-like retail sales fell to a ten-month low of 0.4 per cent in February in a marked reversal of the 2.3 per cent bounce back seen in January following the pre-Christmas weather chaos, according to the British Retail Consortium (BRC).

The gloomy outcome is the latest piece of bad news for the retail sector and follows research from BDO which highlighted an "ugly" February as households tightened their belts amid soaring inflation, fuel costs and increased VAT.

The BRC said its figures confirmed the true trend for consumer spending in 2011. Director general Stephen Robertson said: "After the big boost to January's figures from one-off factors, including a strong final burst of pre-VAT rise spending, February's figures are a return to a more realistic picture of how things are for customers and retailers."

Total sales, which factor in store openings and additional selling space, edged up 1.1 per cent in February, marking the weakest result since May 2009 when last April's Easter-impacted fall is stripped out.

Consumer caution hit clothes sales overall, despite a half-term boost to childrenswear. Sales of so-called big ticket items, such as major electrical goods and furniture, also suffered as demand dropped back after gains in January when shoppers took advantage of seasonal discounting.

Howard Archer, chief UK economist at IHS Global Insight, said: "Consumers are increasingly reining in their spending in the face of serious pressures."

He said the poor result supported the case for the Bank of England to hold fire on raising interest rates this week, although most economists still believe a hike is on the way in May to calm inflation.