For the first time in nine months retail sales in U.K. fell unexpectedly in October as shoppers bought less food and clothing, a sign higher borrowing costs are squeezing consumer spending.
Retail sales declined 0.1 percent, compared with an increase of 0.3 percent in September, the Office for National Statistics said today in London. Economists had forecast a 0.1 percent gain, according to the median of 32 estimates in a Bloomberg News survey. From a year ago, sales rose 4.4 percent.
These figures lent credence to Bank of England Governor Mervyn King’s concerns that the economy may slow “sharply” in the next year, allowing policy makers to cut interest rates. Five rate increases and tighter lending conditions have made consumers wary of adding to a record 1.4 trillion ($2.9 trillion) of debt, slowing a decade-long housing boom.
“We’re going to be witnessing a period of slower household consumption,” said Philip Shaw, chief economist at Investec Securities in London. “Most likely, we’ll see the first rate cut in February.”
The pound fell $0.0134 against the dollar after the report and traded at $2.0444 . in London. The U.K. currency reached a 26-year high of $2.1162 on November nine. Bonds rose, driving the yield on two-year gilts down five basis points to 4.72 percent.
Sales at food stores fell by 0.4 percent, while non-food retailers posted a 0.1 percent decline, the statistics office said. Sales of textiles, clothing and footwear dropped 0.5 percent, the most since May.
Discounting tempted fewer shoppers in October. The implied deflator, a measure of annual price changes, fell for a fourth month, by 1.1 percent, the statistics office said.
Britons still face the burden of servicing 1.4 trillion pounds of debt, while a decade-long house-price surge that encouraged spending is waning.
“We’re seeing very significant signs of a housing market downturn,” said James Knightley, an economist at ING Bank NV in London. “We suspect a rate cut will be coming in February.”
The statistics office announced today that it will start publishing an experimental index on Internet-based retail sales next month. Currently, it doesn’t provide separate data.
