U.K. October Retail Sales Decline for a Second Month

By Jennifer Ryan and Svenja O'Donnell

Nov. 20 (Bloomberg) -- U.K. retail sales fell less than economists forecast in October as shoppers bought more food items, offsetting lower spending on electrical goods and clothing.

Sales fell 0.1 percent on the month after dropping 0.5 percent in September, the Office for National Statistics said today in London. The decline was less than the 0.9 percent median forecast in a Bloomberg News survey of 27 economists. On the year, sales increased 1.9 percent.

Marks & Spencer Group Plc, the U.K.'s biggest clothing retailer, will offer discounts on all apparel and some alcohol today after saying this month that the business climate was the toughest since the early 1990s. Bank of England Governor Mervyn King says that Britain is probably already in a recession.

``The retail environment looks an awful lot worse than these figures suggest, given the sales that have been announced at places such as Marks & Spencer,'' said Jeavon Lolay, an economist at Lloyds TSB Group Plc in London. ``Consumer spending will get worse. The Bank of England is still going to be cutting interest rates and we see a 1 percentage point reduction next month.''

Bank of England policy makers voted unanimously to cut the benchmark interest rate by 1.5 percentage points to 3 percent this month, and considered an even bigger reduction as their forecasts showed a deepening recession, minutes of the Nov. 6 decision showed yesterday.

Electrical Goods

Household goods stores led the monthly drop and fell 5.4 percent from a year earlier, the most since 1992, as shoppers bought fewer electrical items, the statistics office said. Food sales rose 1 percent, helping to offset the overall decline.

Department stores and retailers of textiles, clothing and footwear also reported declines on the month. Total non-food sales increased 0.9 percent from a year earlier, the least in three years, the statistics office said.

The drop in ``non-food sales clearly suggests that discretionary spending is taking a hit,'' Vicky Redwood, an economist at Capital Economics Ltd. in London who formerly worked at the central bank, said in a note. ``It's shaping up to be a pretty awful Christmas for retailers.''

Marks & Spencer is holding a ``one-day Christmas spectacular'' today with discounts of 20 percent, according to a flyer distributed late yesterday outside its Finsbury Pavement store in central London.

`Tough Time'

``We know our customers are having a tough time,'' Marks & Spencer Chairman Stuart Rose said yesterday. ``We want to show our customers we are with them.''

Consumers are paring back spending as the slump in the housing market deepens. The asking price of a home dropped 7.1 percent from a year earlier this month, Rightmove Plc said on Nov. 17. Unemployment rose the most in 16 years in September.

Prospects for Britain's economic growth have worsened as concerns of a global recession increase. The International Monetary Fund predicts advanced economies will together contract next year for the first time since World War II.

King said on Nov. 12 the bank is ``prepared to cut bank rate to whatever level is necessary,'' to keep inflation at the target and didn't rule out putting the benchmark at zero. The Bank of England's forecasts, published on Nov. 12, show inflation may slow ``well below'' the 2 percent goal in 2009.

The annual price deflator, a measure of store prices, showed costs rose 0.6 percent from a year earlier in October, the least in five months, the statistics office said today.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O'Donnell in London at sodonnell@bloomberg.net.