Snowy weather results in strong decline British retail sales

02-25-2010 09:00

Snowy weather affected UK retail sales as it dropped by 1.8% between December and January, which is the strongest decline in 1,5 years, according to the Office for National Statistics. Analysts had expected a drop that was three time less faster. Nevertheless, the data were negatively impacted by the initial contribution of petrol, due to drivers staying at home in the poor winter weather. The figures prove again that the recovery of the UK economy remains fragile, fact that leads to concerns.

Sales

Sales by value jumped 0.9% in comparison to January last year. Fuel sales dropped by 11.1% on a monthly basis. Retail sales exclusive car fuel sales dropped by 1.2%.
Food sales dropped by 2.4%. The Office for National Statistics stated that the poor weather had pushed sales of clothing up.

Value Added Tax

The period relates to the initial month after Value Added Tax (VAT) was raised to 17.5%, as it was temporary lowered to 15%. Analysts believe that this boosted sales in December but affected sales in January.

Inflation

The figures add to the announcement that inflation in the United Kingdom had increased to 3.5%, that the government raised its loans by £4.3 billion last month to fill up the extending gap in British finances, while the number of people claiming Jobseeker’s Allowance rose surprisingly.

Gloomy week

Chief European economist at Capital Economics, Jonathan Loynes, commented: “Last month’s retail sales add to a week of gloomy economic figures regarding the UK economy. Obviously, we expected that January’s sales data would be negative due to the Value Added Tax increase and poor weather. However, the decline came much below expectations.”

Double-dip recession

Loynes continued by saying that sales could recover in the next months, but since prices continue to rise and people’s salaries increase gradually, spending will grow slowly. “However, these figures result in a very weak basis for sales in the initial three months of 2010, fact that increases the possibility that the economy may suffer a double-dip recession,” he added. A double-dip recession refers to a recession followed by a short-lived revival, followed by another recession.