British retail sales suffered an unexpectedly sharp slowdown in September, dragging quarterly growth to its weakest annual rate since 2013, suggesting consumer demand remains uncertain as the Bank of England nears its first rate rise in a decade.

Retail sales volumes fell 0.8 per cent in September, the Office for National Statistics said on Thursday, reversing a jump in August and undershooting all economists' forecasts in a Reuters poll.

Third-quarter growth slowed to a year-on-year rate of 1.5 per cent, its lowest since the second quarter of 2013.

Last month the BoE had said it was likely to raise interest rates in the coming months if the economy and inflation pressures strengthen as expected.

BoE meet

Markets see a roughly 80 per cent chance of a move on November 2 after the BoE's next meeting. Its policymakers had said consumer demand was showing signs of improving after weakness earlier in the year, though it was too soon to tell if it would compensate for weak business investment.

Rising goods prices meant that the amount British shoppers was spending was rising faster than the volume of goods they received for their money.

“There is a continuation of the underlying trend of steady growth in sales volumes following a weak start to the year, and a background of generally rising prices,” ONS statistician Kate Davies said.

Compared with a year earlier, sales volumes are up 1.2 per cent versus expectations of a 2.1 per cent rise. Rising inflation has eaten into British consumers' disposable income this year, causing a very weak first quarter for retail sales as the fall in the pound after last year's Brexit vote pushed up the cost of the imports.

Official data on Wednesday showed that regular pay in the three months to August was 0.4 per cent lower in real terms than in 2016 - the sixth consecutive month of falls and the longest such run in almost three years.

Some shoppers are tightening their belts, as industry data on Tuesday showed the market share of Britain's four biggest supermarkets falling in response to growing sales at German discount chains Aldi and Lidl.

Relatively cheap online fashion retailer ASOS had also revised up growth forecasts on Tuesday, in part due to stronger demand after it froze its prices despite higher import costs following last year's fall in the pound.

Private-sector figures had given a fairly upbeat message on retail spending in September. The Confederation of British Industry reported the strongest growth in two years, while the British Retail Consortium said spending grew last month at a faster pace than for most of 2017.

The BoE expects inflation to peak at just over 3 per cent in October, compared with 3.0 per cent in September, and then fall slowly.

Related Topics
comment COMMENT NOW