Retail sales figures fall as housing sector cools

UK retail sales fell again in February and the usually robust housing sector is reporting a slowdown.

February retail sales volumes were down 0.1% from January, following a 1% fall the previous month. Over the 12 months to 20 March, the growth in retail sales volumes slowed from 4.3% to 3.2%, the weakest annual rate of increase since July 1999.

Meanwhile, total lending figures from the Council of Mortgage Lenders dropped to £17.8m in February from £19.4 in January, its lowest level since June 2002. This suggests a key driver for consumer confidence may be about to falter, signalling further deterioration in sales figures.

'The risk is the housing market,' says Nigel Richardson, senior strategist at Axa. 'There has been a lot of remortgaging. People are confident with their wealth because of the increase in house prices and there would be a serious problem if house prices begin to decelerate.'

David Binnie, senior investment manager at Edinburgh Fund Managers, agrees there have been a couple of bad months for retail sales but notes they are coming off a high base.

He says: 'A year ago, consumer spending was abnormally high and the retail sector was strong. It has weakened over the past 12 months but a slowdown was expected.

'A lot of different factors can impact consumer spending and it is perfectly reasonable to assume it will bounce back. This is not a surprise when worldwide geopolitical concerns are taken into account.'

Richardson expects the UK consumer sector to continue cooling but does not anticipate a crash. He says: 'Unless there is a shock to the system, such as a sudden rise in interest rates or increased unemployment, the consumer should not enter a recession. The consensus is for there to be a slowing down of the consumer in 2003.'

Simon Rubinsohn, chief economist at Gerrards, is not surprised by the decline in retail sales. There are many possible explanations for the figures, he says, from the introduction of the congestion charge in London to the uncertainties resulting from tensions in the Gulf.

Binnie believes the data has not yet had much of an impact on share prices. He says: 'Look at some of the bigger companies such as Marks & Spencer and Boots. They are very defensive stocks and tend to be unaffected by economic uncertainty.

'The high street fashion retailers are not as defensive. It is the smaller retailers and the unlisted companies that will be hardest hit.'

Richardson also cautions against reading too much into the retail sales figures, noting the volatility of retail sales during the Christmas period and the importance of separating fundamental data from erratic activity.

Rubinsohn believes confidence is being eroded by concerns over the outlook for the property market. Loans for house purchases and remortgaging fell to their lowest level for more than a year in February. Binnie adds: 'In the retail sector, valuations are okay but there is a need to see evidence of stronger trading and we are certainly not witnessing that at the moment.'

Philip Scott

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