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UK retail sales tumble in January snow

Coming hard on the heels of weak employment and lending data earlier this week, the figures underlined the fragility of Britain’s recovery and sent the pound to a nine-month low against the dollar.

The Office for National Statistics said sales volumes, based on a new methodology that includes automotive fuel, fell 1.8 percent last month. That was more than three times the drop forecasts by analysts and the biggest monthly slide since since June 2008.

On the year, sales were up 0.9 percent, the weakest annual growth in seven months.

Analysts were reluctant to read too much into the figures given the distortions from the weather, calculation changes and a 2.5 percentage point rise in VAT to 17.5 percent on Jan. 1. But they agreed there was a growing risk Britain’s economy could shrink at the start of this year.

“These numbers provide a very weak platform for sales in the first quarter of this year and therefore raise the chances that the economy may succumb to a double-dip,” said Jonathan Loynes at Capital Economics.

Britain crept out of recession in the fourth quarter of last year, later than most of its peers, growing by just 0.1 percent on the quarter.

Snow disruption

The statistics office said unusually heavy snowfall last month had pushed down sales of household goods, food and fuel.

Much of Britain ground to a halt at the start of January when snow and ice made roads impassable, and hundreds of schools and businesses were forced to close.

Weekly sales data for the John Lewis department store chain has, however, shown fairly strong growth in February compared with year-ago figures, providing some evidence for a recovery in retail sales once the severe weather was over.

Fuel sales fell by 11.1 percent in January as Britons cut down on non-essential journeys, while sales of household goods fell by 13.4 percent, the biggest monthly drop since January 1988. Even excluding fuel, however, sales volumes fell 1.2 percent on the month, the biggest drop in almost a year.

“A decline in January’s retail sales was predicted because of weather-related disruption, but the fall was worse than expected,” said David Kern, chief economist at the British Chambers of Commerce.

“British retailers are obviously facing difficulties, and there is no significant sign that economic recovery is gathering momentum.”

Retail prices rose an annual 2.3 percent in January, the fastest rise since September 2008, when consumer price inflation was running at a record high 5.2 percent.

The Bank of England remains convinced that price pressures will prove short-lived and inflation will fall back to target later this year. It has held interest rates at a record low 0.5 percent since last March and is not expected to raise them until the end of the year at the earliest.

“This points to very modest retail sales growth through most of this year, which will keep Bank of England rhetoric dovish and sterling under pressure,” said James Knightley, UK economist at ING.