British retail sales grew in July at the slowest annual rate since November of last year, while the government failed to make much of an inroad into public borrowing, data showed on Thursday. The figures add to signs that Britain's consumer-led recovery might be starting to slow, which could leave the government with a lot of catching up to do to meet full-year borrowing targets before May's national election.
Monthly growth in retail sales volumes unexpectedly fell to just 0.1 percent in July, down from 0.2 percent in June. Forecasts had called for a rise to 0.4 percent. Annual growth in the volume of goods sold dropped to 2.6 percent, the weakest since last November and again below forecasts. Sales slowed despite prices falling at their fastest rate in almost five years, giving consumers more for their money.
Sterling dipped slightly against the dollar after the data. British government bonds were unchanged. "Today's release provides further evidence that economic expansion in the UK is slowing," said Rob Harbron, a senior economist at economics consultancy CEBR. Government finances data showed an unexpected deficit in July for the second year running, continuing the weak start to this tax year. That is partly due to one-off effects, but it leaves the government needing a big upturn in income tax receipts to meet its fiscal goals.
The ONS said the biggest downward pressure on retail sales came from non-store retailing and petrol stations, and some economists said the retail data looked healthier once fuel sales and monthly volatility were stripped out. "We do not consider this to be a sign that consumer spending is beginning to peter out. One reason is that the past two months' figures probably represent a correction to a run of strong outturns," said Philip Shaw, economist at Investec.
Britain's consumers have been the main driver of the country's economic recovery which began last year, helped in part by low inflation that has eased the pressure on their spending power. Wage growth, however, remains weak and increased spending has been funded in part by households cutting back on how much they save. Prices in stores fell 0.9 percent on the year after being flat in June, the biggest decline since August 2009, the ONS said. However, household budgets are squeezed by higher prices for other goods and services, with the broader consumer price inflation measure rising by 1.6 percent in July.