LESS SPENDING, MORE RAIN

· UK retail sales rose 1.2% on a like-for-like basis, compared with July 2006, when sales were up 3.4%. July’s growth was the weakest since November 2006 and half the monthly average for the second quarter.

· The three-month trend rate of growth fell to 2.1% from 2.5% in June, for like-for-like sales, and to 4.1% from 4.6% for total sales, reflecting the continuing growth of retail space.

· As in June, sales patterns were distorted by exceptional weather both this July and last July, as well as last year’s World Cup. Food sales fell against last year’s heatwave and World Cup. The torrential rain this year continued to hit clothing and footwear, DIY and gardening, but benefited department stores and out-of-town centres. Growth in homewares and furniture slowed and was still largely discount-driven.

· Consumer spending is being squeezed by interest rates. Plans to buy big-ticket items have been scaled down and heavy discounts are often needed to attract customers.

Kevin Hawkins, Director General, BRC comments:

The combination of a tightening squeeze on consumer spending and heavy rainfall reduced like-for-like sales growth to a level not seen since last November, despite heavy discounting and falling retail inflation.  Given these conditions, the Bank of England should now wait and see what happens over the next few months before doing anything further with interest rates.

Helen Dickinson, Head of Retail, KPMG comments:
 
"They said that July 2006 was the hottest on record and July 2007, the wettest. We are also seeing lower demand growth, given ongoing pressures on disposable incomes.  Against this backdrop, the two powerhouses behind UK retail – the food and drink and the clothing and footwear sectors, which together account for over half our spending – had a very disappointing month.  This is on the back of a similar situation in June.  The only reason the overall like-for-like figures for July were not negative was due to spending levels in the remaining sectors holding up."

Dr. Gavin Cameron, Reader in Macroeconomics, Oxford University, comments:
 
“After last week’s decision by the Bank of England to keep interest rates unchanged, there is some uncertainty about future interest rate movements.  Most forecasters are expecting at least one more rise, probably next month; with some forecasters predicting further rises stretching into next year.

Having had five rate rises since last Summer, economic prospects are equally uncertain.  Recent problems in global financial markets threaten to reduce the growth prospects of the UK economy, and there are some signs of a slowdown in the housing market and the high street.  There is a danger that a continued rise in oil prices, coupled with firm consumer spending, will lead to more interest rate rises; while world market turbulence leads to a slowdown in financial services and exports.  The Bank of England may have to adopt a cautious approach in the next few months in order to avoid monetary overkill.  If food and energy price rises can be explained as only temporary aberrations, then the Bank is not obliged to respond with tighter monetary policy.”

Like-for-Like v Total Sales

The 'like-for-like' figure shows how much consumers are spending on a comparable basis, in the same stores year on year. It strips out the effect of expansions, new shop openings and closures on retailer’s sales or profits. It is this figure that is looked at by the city and analysts as an accurate and comprehensive measure of the industry's performance, as it removes any increase in retail floorspace. The 'total' figure, which incorporates these increases, is not a true reflection of retail spend, but merely a reflection of industry growth. The like-for-like figure also monitors the increase or decrease at stores that have been open for at least one year.