U.K. Retail Sales Unexpectedly Stalled in August

By Jennifer Ryan

Sept. 17 (Bloomberg) -- U.K. retail sales unexpectedly stalled in August as shoppers bought less clothing, a sign consumers are cutting back on spending as unemployment rises.

Sales were unchanged from July, when they climbed 0.2 percent, the Office for National Statistics said today in London. The median forecast was for a 0.1 percent increase, according to a Bloomberg News survey of 30 economists. Sales climbed 2.1 percent from a year earlier.

Bank of England Governor Mervyn King said this week that households will keep feeling pain from the recession as the economy embarks on a “highly uncertain” recovery. Consumers are struggling to pay off record debts of 1.5 trillion pounds ($2.5 trillion) of debt as unemployment, currently at a 14-year high, increases.

“Consumer spending has been fairly resilient, but with growth below its potential unemployment will continue to rise and that will hold back consumer spending,” said Alan Clarke, an economist at BNP Paribas SA in London. “There’s a chance the bank will increase the bond purchase program further, and there won’t be any rate increases until at least 2011.”

Sales at non-food stores fell by 0.6 percent on the month, led by textile, clothing and footwear, the statistics office said. That outweighed a 0.7 percent increase in food sales.

Retail sales have stalled after two months of increases. The gain in July was revised down by half from 0.4 percent, the statistics office said.

‘Challenging’ Conditions

Next Plc, the U.K.’s second-biggest clothing retailer, said in a statement yesterday its outlook for the second half “remains cautious.”

The retailer forecasts a drop of 3.5 percent to 6.5 percent in same-store sales for the year. It expects declines in that revenue through at least mid-2010 as public spending cuts hurt employment and tax increases reduce disposable income.

The number of people seeking jobs reached 2.5 million in the three months through July, the most since 1995, the statistics office said yesterday. Prime Minister Gordon Brown, who faces an election next year, said this week that the recovery “is still fragile.”

Britons’ sentiment on spending is showing some signs of recovery. A majority say now is a good time to buy a home as the property market pauses from its slump, according to a survey published yesterday by the Building Societies Association.

Central bank policy makers this month confirmed their plan to buy 175 billion pounds of bonds with newly created money to stoke spending and ensure the end of the recession.

“The strength and sustainability of the recovery is highly uncertain,” King said on Sept. 15. “The key question facing the Monetary Policy Committee is whether this recovery will prove to be sufficiently strong and sustained to keep inflation on track to meet our 2 percent target.”

The retail sales deflator, used to measure changes in shop prices, showed a 0.4 percent annual drop, today’s report showed.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net