Retail sales slow as BOE eyes 1st rate rise in decade

Companies are still creating new jobs but average wages are not matching rising in prices
Credit
Wiktor Szymanowicz /Barcroft Media

Retail sales volumes fell by 0.8% in September, according to data released this morning by the ONS.

Compared with a year earlier, sales volumes in September alone rose 1.2 percent versus the average forecast in a Reuters poll of a 2.1 percent rise.

The Bank of England has said that it expects inflation to peak at just over 3 per cent for this month and then fall gradually.

Growth for the third quarter of the year slowed to a year-on-year rate of 1.5 per cent, its lowest since the second quarter of 2013 and well below the 2.1 per cent pencilled in by city forecasters. Price increases are still absorbing the lion's share of growth in spending, with growth in food sales in September nearly entirely down to inflation.

Ian Gilmartin, head of retail and wholesale at Barclays Corporate Banking, said: "It's important to avoid overstating the negatives in September's retail sales, as retailers did manage to post year-on-year growth despite the range of headwinds they are battling now".

The value of pound fell immediately after the figures were released, with sterling down nearly half a cent to $1.3126, suggesting traders believe a rate rise next month is less likely.

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Monthly figures showed the quantity of food bought and amount spent in grocery stores decreased by 0.6% and 0.3%, respectively.

Inflation was at a five year high of 3 percent in September and is expected to increase a little above that in October.

"However, the prospect of the Bank of England raising interest rates for the first time in over 10 years next month could come at a challenging time for the retail sector". This was also weaker than the expected 2.1 percent.

Overall retail sales across the industry grew by 4.4% in value compared to the same time past year, but fell by 0.5% compared to last month.

Markets see a roughly 80 percent chance of a rate rise on November 2 after the central bank's next meeting, but the pound fell to a one-week low of US$1.3126 after the data yesterday as rate futures pared back the odds of further rate increases in 2018.

James Smith, an ING Bank economist, said a drop in retail sales emphasizes the fragile nature of the United Kingdom consumer spending.

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