High street sales suffered a record slump last month, stoking fears that a
vicious downturn in consumer spending will tip Britain into recession.
The quantity of goods sold in shops across the country plummeted by 3.9 per
cent during June, the biggest monthly drop since 1986, official retail
figures showed.
The data, the first official confirmation that a severe downturn in consumer
spending is taking hold, sparked further worries of a headlong retreat from
the high street, undercutting the spending that has fuelled the economy for
more than a decade.
Sales of food were particularly hard hit, as shoppers balked at paying sharply
higher prices for their weekly supermarket shop or lunchtime snack. Clothes
and shoes purchases also dropped markedly.
Official growth figures today are already expected to confirm that the economy
virtually ground to a halt during the past three months.
The stark high street figures came as a leading think-tank issued a warning
that consumer spending over the whole of next year is set to fall – in what
would be its first drop over a full year since 1991, during the depths of
the last recession.
With families already burdened by soaring costs of living, rising mortgage
bills, slumping house prices and modest pay deals, Britons are set to
abandon their past high-spending habits, said the National Institute for Economic
and Social Research. Overall consumer spending will fall by 0.8 per cent
during next year, after rising by an average of more than 3 per cent every
year over a decade-long national spending spree since 1997, the influential
think-tank predicted.
A continuing slide in house prices until 2010 was one key factor set to take a
further toll on consumer spending and confidence, it cautioned. Based on the
value of homes dropping by 10 per cent, it calculated that this would reduce
households’ total wealth by £357 billion.
But the institute said that although Britain faced another year of economic
misery in 2009, it should still manage to escape falling into recession.
The danger of a severe downturn in the economy was emphasised, however, by the
waning fortunes of the high street laid bare in yesterday’s retail sales
figures.
The abrupt 3.9 per cent plunge in the amount of goods that were sold by
retailers in June more than wiped out a record 3.6 per cent leap in sales
the previous month, when the hottest May on record sent consumers flocking
to buy summer clothing and garden products.
Retail experts had questioned the May surge in sales as flying in the face of
other widespread signs that hard-pressed families were curbing their
spending.
But economists said yesterday that, despite lingering doubts over the figures’
accuracy, the June sales slump suggested that May’s steep gains may have
been simply a “last gasp” from consumers.
“It is more meaningful to look at the two months together, and the clear
overall impression that this gives is that consumers are now increasingly
reining in their spending – be it out of choice or necessity,” said Howard
Archer, of the consultancy Global Insight.
The scale of last month’s woes for retailers was underlined as almost every
part of the high street was badly battered by tumbling sales.
With food prices up by 4.6 per cent from a year earlier, the amount sold last
month fell by a record 3.6 per cent.
Sales of clothes and shoes also tumbled, by 6.9 per cent, the biggest drop
since 2002, fuelling a record 4.5 per cent drop in sales of all products
other than food.
The housing market’s rapid decline also fed through into tough times for
retailers selling household goods, furniture and carpets, and “big-ticket”
electrical products such as televisions, fridges and washing machines.
The amount of household products sold fell by 5 per cent, posting the sharpest
drop for a single month since 1991.
The weakening overall trend in high street trading was underlined as the
annual pace of growth in sales last month sank to just 2.2 per cent – the
lowest figure for almost l2½ years, and dramatically down from the 7.9 per
cent pace registered in May.
Gauged over the past three months, the rate of increase in sales more than
halved to only 0.6 per cent.
The plight of retailers was highlighted by more bleak trading news from
struggling stores groups. JJB Sports, the sports clothing and equipment
chain, announced a fall in sales and reported to the City that it faced
difficult trading conditions.
That came on the heels of similar warnings over sales and profits in recent
week from other chains, led by Marks & Spencer, Middle Britain’s
favourite stores group.
But experts sounded warnings that much worse could follow as the consumer
crunch deepens.
The readiness of families to spend could wane dramatically as the present
squeeze on spending power from soaring food, fuel and utility bills persists
and spells further steep rises in unemployment, economists said.
The number of people out of work has already risen in each of the past five
months, with last month’s increase the sharpest monthly rise since December
1992.
“The prospects for consumer spending over the coming months continue to look
pretty bleak,” Mr Archer said.
In its latest quarterly forecasts of Britain’s economic prospects, the
institute said that the country was set to suffer a consumer-led economic
slowdown stretching well into next year as families’ spending dropped at a
“much faster” rate than it previously had factored in.
Although the think-tank said that a modest recovery should start to take hold
by the spring, it predicted that overall economic growth next year of a
meagre 1.4 per cent.
Despite these poor prospects, the institute argued that the Bank of England
needed to take hardline action and raise interest rates at least once in the
next few months in order to make clear its determination to quell inflation,
which the Bank should “nip in the bud”.
It all adds up
Discount supermarkets, fewer car journeys and energy-saving light bulbs are
becoming the norm for members of the Times Credit Crunch Jury, who
have adapted their lifestyles in response to climbing food inflation, record
fuel costs and “terrifying” jumps in gas and electricity prices.
We asked our members to mark out of ten their level of concern in ten
categories, from house prices and the stock market to food costs and utility
bills. The scores have been combined to give an overall “worry factor” out
of 100.
David Ward, 35 The prospect of much higher energy bills was
“terrifying”, he said. In the past six months his gas bill was £740 and his
supplier, British Gas, announced price rises of around a third this week,
which will hit Mr Ward’s family even harder in the winter months.
Mr Ward, a senior manager for an accountancy firm in Newcastle, is spending
£100 more a month on food compared with last year. He has begun shopping at
Morrisons to take advantage of cheaper prices on day-to-day essentials.
He and his wife Amanda, 36, have also cut back on family days out with their
children, Rory, 5, and Naomi, 3. The biggest concern for Mr Ward, who
commutes 55 miles to Newcastle every day, is fuel duty. He would like to
reduce his £75-a-week fuel bill but says he “can’t see any other
alternatives”.
Worry factor: 67
Graham Smith, 41, and Candice Niven, 34, from Newcastle, are dismayed
by the state of the housing market. Their two-bedroom flat has been on the
market for six months but the offers the couple have had are 10 per cent
below their asking price. “Offers are too low for us to even consider, but
buyers are unwilling to negotiate. There are just too many people in our
situation looking to sell.”
Mr Smith and Miss Niven, who have a joint income of £40,000, are now
considering delaying their move to a family home until next year.
Worry factor: 50
Cheryl Asterley, 46, a single mother from Merseyside, says: “Petrol is
the biggest issue for me at the moment. It is costing me £40 a week to fill
up.”
She drives 20 miles to work in the Youth Justice Service, but has stopped
using her car at weekends, and has been shopping at Netto and Lidl to keep
down the cost of food shopping for herself and her 13-year-old son, Rory.
She also tries to be vigilant about energy use, switching appliances off at
the socket and using energy-efficient light bulbs.
She qualifies for child tax credits, but Ms Asterley has not applied,
believing that the system is overcomplicated.
Worry factor: 61
