British retail sales show sudden setback, day after cuts

21st October 2010, Comments 0 comments

British shoppers were slow to spend in September and retail sales fell unexpectedly, official data showed on Thursday a day after the government announced huge spending cuts.

"September's retail sales figures provide yet more evidence to suggest that consumers are starting to rein in their expenditure even before the fiscal squeeze has begun," said Samuel Tombs, an analyst at Capital Economics consultancy group.

The British public have known for months that draconian cuts in public spending and some tax increases were imminent.

Economists said the data increased the likelihood of fresh stimulus measures from the Bank of England aimed at supporting Britain's flagging recovery from recession.

Retail sales dropped by 0.2 percent last month from the level in August, when they also fell, the Office for National Statistics (ONS) said in a statement on Thursday.

Analysts had forecast a monthly rise of 0.7 percent in September, according to a survey by Dow Jones Newswires.

The ONS added that on a 12-month comparison, retail sales climbed by 0.5 percent in September. However market expectations had been for a gain of 1.5 percent.

In August, sales had dropped for the first time since January.

The coalition government said on Wednesday it intended to axe 490,000 public sector jobs over four years in a bid to slash a record high deficit. Opponents of the measures say that they could tip the country back into recession.

ING Bank economist James Knightley said the data "will help fuel expectations of a second round of quantitative easing from the Bank of England."

Under QE, the central bank has already injected about 200 billion pounds (242 billion euros, 308 billion dollars) into the economy to boost lending and crack the credit crunch.

The initiative, under which the BoE bought government bonds and high-quality private sector assets so as to create new money, helped haul the economy out of a record-length recession in late 2009.

Bank of England policymaker Adam Posen called for a 50 billion-pound increase in the QE, minutes of the bank's last monetary policy meeting showed on Wednesday.

However the BoE's other eight members all voted for the level of stimulus to remain unchanged at the meeting held earlier this month.

Analysts meanwhile expect consumer spending to be hit further in the new year when the British rate of VAT -- a tax on goods and services -- rises to 20 percent from the current level of 17.5 percent.

© 2010 AFP

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