Retail recovery hopes grow

Rhian Nicholson
19.11.09 10:39

Shoppers were starting to loosen their purse strings in October with retail sales growing at their fastest rate for 17 months, official figures showed today.

Last month saw a 0.4% rise on an upwardly revised September figure from the Office for National Statistics - slightly weaker than suggested by surveys from the Confederation of British Industry and the British Retail Consortium.

This puts sales volumes 3.4% ahead of the same month last year amid a stronger performance from clothing and footwear.

Jonathan Loynes, UK economist at Capital Economics, says: "Spending off the high street (on services etc) has been much weaker during the economic downturn, with the result that overall household spending probably fell again in the third quarter.

"With household debt still very high, unemployment set to rise a lot further and a fiscal squeeze looming, the outlook for consumers is hardly rosy."

Howard Archer, chief UK economist at IHS Global Insight, says the breakdown of the retail sales data is "relatively encouraging" with non-food sales up by 0.6% month-on-month in October, suggesting that consumers' discretionary spending is picking up.

"Very low mortgage interest payments and moderate inflation are boosting the purchasing power of a good many people, thereby giving them scope to step up their discretionary spending. It may also well be the case that a large number of people are determined to splash out and really enjoy Christmas after enduring a very difficult year.

"Nevertheless, the concern remains that even if there is a significant pick up in spending over the fourth quarter, it may only be temporary due to the serious headwinds still facing consumers," he adds.

Earlier this month, high street stalwarts Marks & Spencer (MKS) and Next (NXT) pointed to further signs of a retail revival following stronger trading in recent months.

M&S delivered pre-tax profits at the top end of expectations as tight cost and stock management paid off and food sales picked up.

Fashion retailer Next also reported better-than-expected third-quarter sales, leading it to up its sales and profit guidance for the second half of the year.

Today, Halfords (HFD) maintained the positive momentum with a healthy 24% jump in pre-tax profit to �60.9 million from �49.1 million in the 26 weeks to 2 October. The bike and car parts chain put the strong performance to "sales and margin growth, operating cost discipline and reduced finance costs".

Revenue was up 1.7% on a like-for-like basis as more Britons become more money conscious, choosing to carry out simple repairs and holiday more in the UK on camping and cycling trips.

The group forecasts a further another increase in second-half profits but says it remains cautious about the economy and its impact on consumer spending.

Retail recovery hopes grow

More Articles