Any confidence that the UK's retailing sector may have turned the corner following a difficult 2005 may have been dashed this morning with news that sales during January fell for the first time in six months and by the biggest amount in over a year.
Figures from the office for National Statistics revealed that retail sales during the month, on a seasonally-adjusted basis, fell by 1.3 pct from December. January's decline was the first since July 2005, when sales fell by 0.6 pct and the biggest since December 2004 when they slumped 1.8 pct.. The monthly fall also contrasted with the 0.4 pct rise recorded in December and the 1.0 pct rise in November. Analysts polled by AFX News had predicted no change in the monthly rate.
On a year-on-year basis, the statistics office said retail sales were 1.3 pct higher, way below expectations of a 3.1 pct increase and down on December's upwardly revised 4.3 pct (originally 4.0 pct). The January rate was the lowest since October's 1.3 pct rise and was last lower in September, when the increase was only 0.4 pct.
A more detailed look at the January data shows that there were decreases on the month for all sectors except for non-store retailing which was flat on the month. Household goods stores showed the largest decrease of 3.0 pct, following an unusually strong December.
On a broader basis, the statistics office said retail sales in the three months to January were 1.3 pct higher than the previous three month period. This follows growth of 1.6 pct in the three months to December but still compares favourably with the 0.6 pct decrease recorded at the same time in 2005. Compared with the same period a year ago, sales volumes in the three months to January were up 2.6 pct, unchanged on the three months to December. Based on non-seasonally adjusted data, the average weekly value of retail sales in January was 4.35 bln stg, unchanged from January 2004, but some 32.1 pct lower than in December, the sector's most important month. The monthly drop was larger than the usual 29-30 pct and was the biggest since January 1996. Retail sales during January account for only around 4-5 pct of the annual total.
Between November and January, the value of sales in current prices was 1.9 pct higher than in the same period a year earlier.
Elsewhere, the statistics office said the implied deflator for January is showing prices down 1.2 pct over the year against the 1.1 pct decline recorded in December. Today's data also appear to contradict the underlying view of the Bank of England's Inflation Report, which was published yesterday.
The central bank's governor Mervyn King pointed to an improved consumer outlook as one reason for the relatively rosy growth scenario anticipated. Because of that, sterling markets reined in any expectations that the rate-setting Monetary Policy Committee will be cutting its key repo rate from the current 4.50 pct any time soon.
"Clearly casts some doubt what was said at the Bank of England yesterday that the worst of the consumer slowdown is behind us," Mark Miller at HBOS said of today's data.
He called the data "a genuine surprise." While it may still be premature to say that the consumer demand is fast fading and will put a drag on overall GDP growth, the early indications suggest that 2006 got off to a very weak start, he added.
He pointed out that the drop in January was across all parts of the retail sector and that it remains to be seen if some of the pick up in housing activity will feed through.
The pound fell while short sterling futures rose after the numbers