Tuesday, February 07, 2006
Weak retail sales, or just a welcome rebalancing?
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

The British Retail Consortium duly reported that retail sales in January were weak. This is a summary of their findings:

"Retail sales in the UK during January rose only 0.2% on a like-for-like basis from January 2005 when sales had increased 0.5%. This January was the weakest start to the year since the survey began in 1995.

"The three-month trend rate of growth improved in January to 1.1% from 0.2% in December for like-for-like sales, but slowed to 3.6% from 4.1% for total sales.

"Sales fell back significantly after the clearance sales ended. Food sales slowed after their Christmas upturn, and clothing and footwear also dropped back. Home and leisure remained difficult, with sales mainly discount-driven.

"Underlying trade remains tough as shoppers are still cautious: although keen to take advantage of clearance promotions and discounts, they are still reluctant to commit to larger purchases."

For the uninitiated, like-for-like sales adjust for changes in floorspace, and on this basis (a 0.2% increase over 12 months) sales were at their weakest for any January since the survey began 11 years ago. Total sales were up by 3.4%. These are value numbers - in a low inflation environment retailers don't benefit from any "money illusion".

How serious should we be taking these figures? The FT's headline is: "Weak retail sales spark fears of slowdown." I've been saying for some time that the consumer has turned and that spending will increase at a slower rate because of subdued real income growth and the lack of a kick from the housing market, among other things.

But these figures alone are unlikely to sway the MPC this week, although they'll make the outcome on Thursday a lot more interesting. One thing the committee will bear in mind is that prospects for global growth appear to be strengthening; some City houses say this could be the best year for the world economy for two decades. The scope thus exists for rebalancing the UK economy, assuming exporters can take advantage.

Comments

Hi David,

I would like to know your current view on the state of the housing market and you expectations on the near future of this market, employment market and stock and bond markets.

Best regards,

Andrew

Posted by: Andrew Insley at February 7, 2006 01:20 PM

That's too big a question - several articles' worth. You'll find some of the answers on the site. Or perhaps you could narrow it down.

Posted by: David Smith at February 7, 2006 03:02 PM

I would be interested to know roughly what you think a sustainable level of oil prices would be?

Posted by: Sophie at February 9, 2006 11:18 AM

I would be interested to knowhow far you think that oil prices could rise without causing a huge inflationary impact?

Posted by: Sophie at February 9, 2006 11:19 AM

I think the sustainable level of oil prices is $35-40 a barrel, though many disagree. In terms of the inflationary impact - any rise in oil prices will have a short-term effect on inflation. But I wouldn't see a sustained effect even from $100 oil. The negative effects on growth would ensure the initial inflationary effect did not follow through.

Posted by: David Smith at February 9, 2006 08:33 PM

Dear Mr Smith

I would be interested in knowing your current views on the extent and significance of the impact of migrants creating a downward pressure on wage inflation. Also whether or not the second round effects of gas prices are likely to occur and therefore leading to wage inflation.

Posted by: Faria at February 23, 2006 08:03 PM

Dear Mr Smith

I would be interested in knowing your current views on the extent and significance of the impact of migrants creating a downward pressure on wage inflation. Also whether or not the second round effects of gas prices are likely to occur and therefore leading to wage inflation.

Thankyou.

Posted by: Faria at February 23, 2006 08:03 PM