U.K. Retail Sales Unexpectedly Post First Drop Since January

Bloomberg--U.K. retail sales unexpectedly fell in August, the first decline since January, led by a drop in sales at book shops, sporting-goods stores and pharmacies. Sales dropped 0.5 percent from July, when they rose 0.8 percent, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 23 forecasts in a Bloomberg News survey. On the year, sales rose 0.4 percent, the least since April. The pound declined after the report, which adds to signs that the U.K. economy is cooling after expanding at the fastest pace in nine years in the second quarter. Planned government spending cuts to reduce the record budget deficit may further damp demand. Next Plc, the second-largest U.K. clothing retailer, said yesterday that an environment of low sales growth may be the “new normal.”

“People are becoming a little bit more nervous about the fiscal austerity measures,” James Knightley, an economist at ING Financial Markets in London, said in a telephone interview. “It’s not looking particularly encouraging for the economy. It’s going to be very weak growth.” The pound dropped as much as 0.4 percent against the dollar after the data were published. It was at $1.5596 as of 10:08 a.m. in London, down 0.2 percent since yesterday.

Mail Order

Sales at food stores fell 0.5 percent in August from July, the statistics office said. Sales at “other stores,” which includes sports shops, book stores, pharmacies and personal- computer stores, dropped 2.1 percent, the most in seven months. The only increases in sales were recorded at department stores, where there was a 0.9 percent gain, and internet and mail-order retailers, which jumped 2.1 percent. The increase in sales in July was revised from an initially reported 1.1 percent. The statistics office also revised earlier data after rebasing prices and reviewing seasonal adjustments.

Excluding fuel, sales fell 0.4 percent in August from the previous month and were up 1.9 percent on the year. While Debenhams Plc, the U.K.’s second-largest department- store company, said on Sept. 14 that full-year earnings rose about 20 percent, Chief Executive Officer Rob Templeman said it is “correct to remain cautious about the level of consumer confidence going forward.” London-based furnishings and clothing chain Laura Ashley Holdings Plc said on Sept. 10 that the consumer outlook is “uncertain.”

‘Considerable Uncertainty’

Recent data indicate the pace of U.K. economic growth is easing, with gauges of services, manufacturing and construction declining in August. Jobless claims unexpectedly rose by 2,300 last month, the first increase in seven months, the statistics office said yesterday “The road ahead is unlikely to be straight,” Bank of England Governor Mervyn King said in Manchester, England yesterday. “There is considerable uncertainty about the prospects for both the U.S. and the euro area -- our most important export markets.” Inflation in Britain unexpectedly held at 3.1 percent in August, exceeding the government’s 3 percent upper limit for a sixth month. The retail deflator showed a 1.5 percent annual price increase in today’s report. A report from the Bank of England today showed Britons’ expectations for consumer-price gains in the next 12 months rose to the highest level since August 2008. U.K. consumers questioned last month expected prices to increase 3.4 percent over the following year, the central bank said today in London. That compares with expectations in May of a 3.3 percent increase. GfK NOP questioned 2,049 people age 15 and over between Aug. 12 and Aug. 17. The Bank of England held its key interest rate at a record low of 0.5 percent and its bond-purchase program at 200 billion pounds ($312 billion) on Sept. 9.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net