Shoppers defy crunch
Credit crunched consumers are not giving up their shopping habits, with the latest retail figures showing a surprise bounce in July.
Despite economists widely predicting a slowdown in retail sales, official statistics released this morning in fact reveal sales on the high street were much stronger than expected. In the three months to June, sales grew by 0.6%, but in the three months to July this increased to 0.7% growth.
On an annual basis, total retail sales were up 3.9% in July, with food shops reporting 2.2% growth and other outlets experiencing 4.3% growth.
Clothing and household goods sales help drive the growth.
Peter Newland, an economist at Lehman Brothers, says that retail statistics have been volatile for much of the year, with a surge of activity in May followed by a sharp slowdown in June.
He adds that despite the surprise growth in July, it will not be enough to prop up the flagging economy. Gross Domestic Product (GDP) figures are out at the end of this week, and experts largely expect that the economy has stopped growing and actually started to slow.
Newland says: “Today’s number does not change our view that GDP growth will turn negative in quarter three or that the Monetary Policy Committee will cut interest rates before the end of the year.”
The figures show that monthly sales have risen in all retail sectors except non-specialised stores and non-store retailing and repair.
Benjamin Williamson, an economist at the Centre for Economic Business Research, says the housing slowdown continues to hit sales in household goods stores.
He adds: "Looking forward, the slowdown [in retail sales] is likely to continue, perhaps gathering pace as the housing market slowdown and the high cost of living continues to hit consumer confidence.
"With inflation at its upper limit and a calmer picture for retail sales for July, interest rates are likely to remain on hold until the end of the year. Further storms down the line, however, could see interest rate expectations revised downwards."
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).