Retail sales in the U.K. fell more steeply than expected during the second month of the year as rising prices and the higher value-added tax discouraged consumers from shopping, according to The Daily Telegraph. On Thursday, the Office for National Statistics reported that retail sales in the U.K. fell by 0.8% in February from the previous month, partially reversing at 1.9% monthly gain during January. The drop outpaced economists forecast, raising concerns about the strength of economic growth ahead of government spending cuts.
The drop was driven by a 2.5% spike in retail prices during February, which is the largest monthly jump since 1994. Excluding fuel, retail prices added 2.4% during that time, which is the biggest rise in almost 25 years of records. Howard Archer of IHS Global Insight said, Given that consumer spending accounts for some 65% of GDP, any sustained weakening in spending would be very worrying for overall growth prospects. Hetal Mehta of Daiwa Capital Markets added, Consumers are being buffeted by falling real wages and high unemployment, which are undermining consumer confidence. The report is likely to increase pressure on the central bank to raise interest rates to curb price growth.