Shoppers cut back on food and petrol

Retailers suffered an unexpected drop in sales last month as shoppers bought fewer household goods and less food and petrol, official figures show.

Picture: PA

The Office for National Statistics (ONS) said retail sales fell 0.2 per cent between May and June, confounding a forecast rise of 0.4 per cent, while the annual rate of growth slowed to 4 per cent.

This was the slowest annual growth since last September and came despite another fall in prices and wages rising above inflation.

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The ONS said sales falls were seen across petrol stations, food stores and shops selling household goods. But sales by volume were up by 0.7 per cent overall quarter-on-quarter in the three months to the end of June.

Economists said the June drop was a surprise, but believe robust underlying consumer spending should help shore up growth in the wider economy.

Paul Hollingsworth, at Capital Economics, pictured below, said: “The weaker tone of June’s retail sales figures does not alter the big picture that the consumer recovery remains in full swing.

“And with the UK set for another period of ‘good’ deflation, the prospects for the second half of this year are bright.”

He believes inflation – currently at zero – could drop into negative territory for a spell, spurred on by lower oil prices and an upcoming cut in British/Scottish Gas tariff prices, which would boost household spending power.

June’s disappointment came after sales rose by 0.7 per cent in April and 0.3 per cent in May.The ONS said the amount spent in shops fell 0.1 per cent between May and June, but was 0.9 per cent higher year-on-year.

A 10 per cent plunge in petrol station prices drove overall prices down by 2.9 per cent last month compared with a year earlier, said the ONS.

The figures came ahead of next week’s initial estimate for UK growth in the second quarter, with economists looking for a pick-up on the 0.4 per cent rise in gross domestic product (GDP) in the first three months of 2015.

Howard Archer, chief UK and European economist at IHS Global Insight, said that despite the fall in sales last month, “consumer spending made a healthy contribution to GDP growth”.

He expected GDP to rise to 0.7 per cent in the second quarter.

He said: “Consumer confidence was at a 15-year high in June, inflation is negligible, earnings growth improving and employment has risen appreciably, despite a relapse in the latest data. Additionally, signs of a pick-up in housing market activity should be supportive to consumer spending through boosting demand for household goods and furnishings.”

The ONS data also showed online retail sales rose 1.4 per cent by value between May and June, accounting for 12.4 per cent of all sales. Year-on-year, internet sales rose 11.4 per cent in June.