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Trouble in store as January retail sales tumble 1%

KARL WEST
WORRIES about the strength of UK consumer confidence resurfaced yesterday as data from the Office of National Statistics (ONS) showed that retail sales took a bigger-than-expected tumble of 1% in January.

The fall was much more than the 0.3% analysts had forecast, and followed a 0.9% gain in December.

The weaker performance cooled down the annual rate of increase to 4.2% from a red-hot 6% in December.

Geoffrey Dicks, UK economist at Royal Bank of Scotland, said: "For the first time in years, there is a genuine question mark over the consumer."

Some commentators said the lower numbers were surprising given the upbeat tone of recent surveys from both the British Retail Consortium and the Confederation of British Industry (CBI).

The divergent views are a result of seasonal adjustments and the period of coverage which tends to differ between the various reports. The ONS included the first week of the sales in its December numbers.

Simon Rubinsohn, chief economist at Gerrard, suggested the smoothed three-month, year-on-year comparison provided a clearer underlying picture. Using this method, volumes rose strongly at 4.8%, albeit down from 6% in December. He added: "It hardly, in truth, suggests that the consumer is as yet throwing in the towel."

However, he conceded, this was still the lowest rate of growth since the early part of 2001 and would support the view that households, which have been the bedrock of economic growth in recent years, are likely to play a lesser role in driving economic activity over the next year.

Based on non-seasonally adjusted data, the average weekly value of retail sales in January was 4.2bn, 3.1% higher than in January 2002.

In addition, the battered manufacturing sector reported weak demand for a fifth successive year, according to the CBI's latest industrial trends survey.

It marked the 60th month where a balance of firms reported orders below normal. About 44% of firms said total orders were below normal and 13% said they were above, between January 22 and February 12.
The sector has been hit by falling export orders, because of faltering global economic conditions, particularly in the main markets of the US and the eurozone.

Doug Godden, the CBI's head of economic analysis, said: "Firms will now be hoping that this month's interest rate cut will offer some relief, but what the beleaguered sector really needs is a pick-up in global demand."

The Bank of England recently cut borrowing costs from 4% to a 48-year low of 3.75%. Other economic data yesterday from the British Bankers' Association (BBA) showed lending secured on dwellings rose by 5.4bn in January, up from the 5.1bn rise seen in December.

However, that was well off the record peak of 6.4bn in November 2002.

Economists said the small increase was consistent with forecasts of a slowing house market.

Card borrowing rocketed by 400m, its strongest monthly rise since May 2000. This was accompanied by very subdued personal loan demand, up only 200m.

Ian Mullen, the chief executive of the BBA, said: "Despite a slowing housing market, mortgage lending remained strong in January, while consumer credit was subdued.

"These figures suggest that people are continuing to use equity withdrawal rather than personal loans and overdrafts for their borrowing needs."
Feb 21st 2003


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