October 18, 2018 / 9:32 AM / a month ago

UPDATE 1-Slump in food shopping drags down UK retail sales

    * UK retail sales drop 0.8 pct in Sept, largest fall since
March
    * Food purchases fall by most since October 2015
    * Decline follows robust summer boosted by hot weather
    * Sterling edges lower over concerns about consumer health

 (Adds reaction from economists and markets)
    By David Milliken and Andy Bruce
    LONDON, Oct 18 (Reuters) - A free-spending summer by British
consumers came to an abrupt end last month with the biggest fall
in sales in six months, raising questions about one of the main
drivers of the economy ahead of Brexit, official figures showed.
    Retail sales volumes in September dropped by 0.8 percent
from August - a sharper fall than economists had expected in a
Reuters poll - hit by the largest decline in food purchases
since October 2015, the Office for National Statistics said.
    Annual sales growth slowed to 3.0 percent from 3.4 percent
in volume terms, in contrast to the pick-up expected by
economists. 
    But looking at the quarter as a whole, annual growth was
still the strongest for a calendar quarter since late 2016.
    The joint-hottest summer on record, combined with the World
Cup in June and July, encouraged shoppers to splash out on food
and drink for barbecues earlier in the quarter.
    Britain's economy has slowed since the June 2016 Brexit
vote, but consumer spending has remained fairly solid, despite
pressure on household disposable income from a spike in
inflation since the referendum.    
    Sterling edged lower against the dollar after the data.
   "September's dip in sales reinforces suspicion that consumers
may be a bit more restrained in their spending in the near term,
at least after their third-quarter splurge - as their purchasing
power is still relatively limited," said Howard Archer,
economist at consultants EY ITEM Club.
    Previously published data from the British Retail Consortium
and Barclaycard had already shown households were spending more
cautiously last month after their summer spree.
    This week provided signs of some respite for households,
with underlying pay growth picking up to its fastest since 2009
at 3.1 percent and inflation dropping to 2.4 percent.
    "Retail sales continued to grow in the three months to
September ... despite a slowdown in food sales following a
bumper summer," ONS statistician Rhian Murphy said.
    Thursday's data showed a 1.5 percent monthly drop in food
sales, spread across both big supermarkets and smaller stores.
But sales of household goods such as furniture and electricals
saw the biggest annual growth since 2001, boosted by promotions,
clearance and online sales.
    British retailers themselves have reported mixed fortunes in
their most recent earnings reports.
    While grocery sales have been robust this year, a shift away
from high-street spending towards holidays and entertainment,
along with online competition, has taken its toll on clothing
and homeware retailers who lack a dominant internet presence.
    This week, fashion retailer Superdry          warned on
profit, and department store group John Lewis has reported
lacklustre autumn trading             .
    Online fashion has been the exception with both ASOS
         and Boohoo          reporting strong trading.
                         .

 (Editing by Larry King)
  
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