UK - Alarm as food sales show slump

[Vombatus]

Rising prices and weak demand have caused sales volumes in Britain's food stores to slump more than 3% over the past year.

In reporting a bigger-than-expected drop in month-on-month volumes of 1.4% for the whole retail sector, the Office for National Statistics (ONS) said supermarkets, electrical goods and DIY stores appeared to be bearing the brunt of the squeeze on household budgets.

It said food store volumes fell by 3.5% year-on-year during May, although the value of sales rose by 1.7% after retailers lifted prices by 5.3% to offset inflationary pressures.

Economists expressed alarm at the latest gloomy survey, although they pointed out the headline monthly figure of minus 1.4% was distorted by the previous month's boost from the weather and royal wedding.

Vicky Redwood, an analyst at Capital Economics, said: "We expect this trend to worsen as households respond to the intensifying squeeze on their real pay. We continue to think that overall household spending will drop by about 1% this year."

The food store figures were the worst monthly performance for three years and the first decline for 14 months.

Household goods and clothing sales also fell especially sharply in May, with furniture, electricals goods and DIY volumes 6% lower compared to last year, although the comparative period was boosted by pre-World Cup spending.

Grocery giants Sainsbury's and Tesco both warned this week that higher petrol prices were having an impact on consumer spending, with Sainsbury's adding that its cheapest Basics brand was the fastest-growing at the store chain, signalling a move by customers to keep their costs down.

The ONS added that the amount of money spent on food compared to other items fell to 42p in May from 43p in April.

Richard Lim, an economist at the British Retail Consortium, said: "A return to sunny weather through the summer may provide another lift to retail sales, but it will take more than the holiday season to fix the underlying problem of low consumer confidence."