UK retail sales recover, borrowing hits Oct record

LONDON - British retail sales recovered in October after two months of declines but government borrowing hit another record high for the month, underscoring the need for tough fiscal retrenchment ahead.

By (Reuters)

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Published: Thu 18 Nov 2010, 7:21 PM

Last updated: Mon 6 Apr 2015, 11:32 AM

Thursday’s batch of data — which included weak mortgage lending figures and a modest improvement in manufacturers’ order books — did little to alter the view that consumer spending would lag any broader economic recovery over the coming year.

Retail sales figures have been disappointing since the summer and a hoped-for surge of purchases ahead of a planned VAT rise in January has yet to materialise. “The more important question is what retail sales do going forward, and after the VAT hike in January, and over the rest of the year as the fiscal tightening gets into gear,” said Philip Shaw, an economist at Investec.

The Office for National Statistics said sales volumes rose 0.5 percent last month, slightly faster than the 0.4 percent rise forecast and reversing a downwardly revised fall of 0 .5 percent in September. However the annual rate fell to -0.1 percent as expected, the first negative reading since January.

Philip Green, the billionaire owner of Topshop-to-Bhs retail group Arcadia, told Reuters in an interview he expected trading to get harder in 2011.

“You have to be concerned that people are going to be even more discerning than they have been,” he said. “The assumption is it has to get tougher. You’ve got to be realistic.”

Deficit challenge

Government borrowing came in a touch above expectations at 9.8 billion pounds last month, a record high for the month of October, although there were favourable revisions to prior months.

Britain’s coalition government is hoping to reduce a budget deficit of around 11 percent of GDP to next to nothing over the next five years and has embarked on the most aggressive public spending squeeze since World War Two.

“This month’s borrowing figures again make clear exactly why we need to tackle the unprecedented borrowing the government faces,” said a Treasury spokesman.

October’s figures showed strength in corporation tax and VAT receipts, but a fall in income tax and capital gains tax compared with a year ago.

Government forecasts are based on a measure of PSNB that excludes financial sector interventions, and this measure came in at 10.3 billion pounds, slightly higher than the same month a year ago.

For the year to date, borrowing on this measure totalled 81.6 billion pounds, nearly 6 billion pounds lower than the same period a year ago and leaving the government with a good chance of meeting its full-year borrowing forecast of 149 billion pounds.

“Favourable revisions to the back data mean that the public finances still show overall improvement during fiscal year 2010/11 so far, so the Chancellor is on track to meet his targets and could even modestly undershoot them,” said Howard Archer, an economist at IHS Global Insight.

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