Retail sales improve in October
Shoppers started to loosen their purse strings in October with retail sales growing at their fastest rate for 17 months, according to official figures.
Retail sales in October were up 3.4% on the same month last year, driven by clothing and footwear (10.7% rise) and online/catalogue sales (15.8% rise). Shoppers are also spending more on retail items, with the value of sales up 3% year-on-year.
Howard Archer, chief UK economist at IHS Global Insight, says the breakdown of the retail sales data is "relatively encouraging" with non-food sales up by 0.6% in October - suggesting that consumers' discretionary spending is picking up.
"Very low mortgage interest payments and moderate inflation are boosting the purchasing power of a good many people, thereby giving them scope to step up their discretionary spending," he adds. "It may also well be the case that a large number of people are determined to splash out and really enjoy Christmas after enduring a very difficult year."
However, rising unemployment, the return of VAT to 17.5% in January and the potential for the rate of inflation to rise in 2010 could dampen any pick-up in sales.
"With household debt still very high, unemployment set to rise a lot further and a fiscal squeeze looming, the outlook for consumers is hardly rosy," says Jonathan Loynes, UK economist at Capital Economics.
Earlier this month, high street stalwarts Marks & Spencer and Next pointed to further signs of a retail revival following stronger trading in recent months.
M&S delivered pre-tax profits at the top end of expectations as tight cost and stock management paid off and food sales picked up.
Fashion retailer Next also reported better-than-expected third-quarter sales, leading it to up its sales and profit guidance for the second half of the year.
Today, Halfords maintained the positive momentum with a healthy 24% jump in pre-tax profit to £60.9 million from £49.1 million in the 26 weeks to 2 October. The bike and car parts chain put the strong performance to "sales and margin growth, operating cost discipline and reduced finance costs".
Revenue was up 1.7% on a like-for-like basis as more Britons become more money conscious, choosing to carry out simple repairs and holiday more in the UK on camping and cycling trips.
The group forecasts a further another increase in second-half profits but says it remains cautious about the economy and its impact on consumer spending.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
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).
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.