Food prices force consumer cut-backs

23 October 2008

Households are cutting back on their weekly grocery shop, with food sales falling at their fastest rate since records began in 1986.

The latest retail sales figures from the Office for National Statistics show high street sales are growing at their slowest rate in two and a half years, as consumers shun the shops.

Food sales have taken a particular hit, actually falling by 0.1% between July and September. In comparison, non-food sales increased by 3% during the period, and non-high street retail sales increased by 12%. However, the month of September saw activity on the high street all but dry up, with total sales down 0.4%.

Purchases of items such as fashion and household goods took a particular hit, falling 2.3% and 2% respectively.

The rising cost of food seen this year is likely to be a key cause of falling sales; recent research revealed that the cost of food has increased by nearly 30% in the past 12 months with households spending an extra £1,404 a year on their groceries.

Economists say the figures could have been worse, but still indicate a trend away from spending as households tighten their belts ahead of a recession.

Vicky Redwood, UK economist at Capital Economics, says: “A much sharper slowdown is likely in the coming months, though. House prices are still falling, unemployment rising and credit conditions tightening.

“We expect overall real consumer spending to fall by around 1.5% next year – with the retail sector perhaps seeing an even sharper drop in sales.”

The figures come in the same week that fashion giant Arcadia, which owns Topshop and Miss Selfridge, reported a 6% fall in annual profits to £275.3 million. DSG International, the owner of Currys and PC World, has reported a 7% drop in sales in the six months to October, while sales at Homebase and Argos fell 10.3% and 3% respectively in the half year to August.

The outlook for retailers also looks grim; Sony has cut its forecast for annual profits by nearly 60%, while Amazon recently warned that it may miss its Christmas sale targets.

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