LONDON (Reuters) - Shoppers barely trimmed their spending in September, even as the world’s financial system teetered on the brink of collapse, threatening to drag the economy down with it.
The Office for National Statistics said retail sales fell 0.4 percent last month, taking the annual rate of growth down to 1.8 percent, its weakest since February 2006.
But the figures were not as bad as analysts’ forecasts for a monthly fall of 0.9 percent and an annual rate of 2.0 percent growth.
The official data has been surprisingly resilient this year given weak readings in other monthly surveys and gloomy news from retailers.
Thursday’s figures were more in line with retailers’ own gloomy reports and less formal industry surveys that indicate that consumption -- the engine that has driven British growth for years -- is finally running out of steam.
Bank of England Governor Mervyn King and Prime Minister Gordon Brown have said that Britain is on the verge of its first recession in 16 years and third-quarter growth data due on Friday could show the economy is already in decline.
“These figures add to the host of economic data released over the past few weeks showing that, whether or not the government’s measures put the banking sector back on its feet, a sharp economic slowdown is well under way,” said Vicky Redwood, economist at consultancy Capital Economics.
Most economists in a Reuters poll expect the Bank of England will repeat this month’s half percentage point cut in borrowing costs in November to shore up the economy. Some even see rates falling below 3 percent next year from the current 4.5 percent.
But monetary policymakers, visiting northern England this week to see how the global financial crisis is affecting local businesses and consumers, are giving little away on the size and timing of any future interest rate moves.
Arch-hawk Timothy Besley told the Yorkshire Evening Post that the fall in oil and commodity prices was a welcome development but said he would not pre-judge any future rate decisions.
Governor Mervyn King said the bank was ready to alter its key rate to offset the shocks of the global credit crunch.
Another Bank policymaker, Kate Barker, said it could be months before businesses and individuals feel any benefit in lending conditions after the government’s 37-billion-pound recapitalisation package for banks.
A global shortage of capital has forced banks here to hold back on lending, choking the housing market.
Figures on Thursday showed lending conditions remain tight. The British Bankers’ Association said net mortgage lending rose by 3.6 billion pounds ($5.90 billion) in September, a bigger increase than in August but still below the 6-month average.
Moreover, approvals for new home loans were 56.6 percent down on the year at 23,422.
The house price slump has also had a knock-on effect on retail sales, with consumers spending less on household goods and other items associated with moving home.
The ONS said the main culprits for September’s fall in sales were a 2.0 percent drop in sales of household goods and a 2.3 percent decline in textile, clothing and footwear sales.
Retailers are worried that worse is yet to come. On Thursday Europe’s second-largest electrical retailer, DSG, reported a drop in half-year sales and said it was bracing for a poor Christmas. Earlier this week two major clothing retailers, Arcadia and Debenhams, reported falling sales and profits.
“It goes without saying that times will remain incredibly tough for retailers over the remainder of 2008, and probably all of 2009,” said Gavin George, head of retail at consultancy Ernst & Young. “Christmas will be painful for much of the sector as consumers continue to batten down the hatches.”
By contrast, French shoppers defied expectations in September by spending more than they did the previous month.
French household spending on manufactured goods including cars and clothes rose 0.6 percent in September, its biggest monthly gain since May, and well above the 0.1 percent fall expected by economists polled by Reuters.
Editing by Victoria Main
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