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UK retail sales growth weakens, prices soar-CBI
Published in Saudi Press Agency on 24 - 02 - 2011

Awwal 21, 1432 H/Feb 24, 2011, SPA -- British retail sales growth slowed more than expected in February to its weakest since last June, but firms ramped up prices at their fastest in 20 years, adding to worries about inflation, a survey showed on Thursday, according to Reuters.
The figures will make uncomfortable reading for Bank of England policymakers who are inching closer to raising interest rates from a record low 0.5 percent to curb rising price pressures, but are also worried about hurting Britain's economic recovery.
The Confederation of British Industry's distributive trades survey's reported sales balance fell to +6 from +37 in January, well below forecasts for a reading of +30. Moreover, retailers expected sales growth to continue to slow next month, with the expected sales balance falling to zero.
"The substantially weaker survey fuels concern that consumers are now reining in their spending appreciably in the face of serious headwinds, most notably including the increasing squeeze in their purchasing power coming from higher inflation and muted wage growth," said Howard Archer, economist at IHS Global Insight.
"Given that consumer spending accounts for some 65 percent of GDP, this is worrying for growth prospects and something that the BoE will need to watch carefully as it agonizes over its interest rate decision."
Bank of England Monetary Policy Committee member David Miles said on Thursday that policymakers must be careful not to derail Britain's economic recovery when they act to bring inflation back to target.
However, with consumer price inflation already double the bank's 2 percent target, MPC members will be dismayed at firms' plans to pass on higher costs to consumers.
Quarterly figures from the CBI showed retailers put up prices in February at their fastest rate since 1991, and planned to keep up the pace of price rises in coming months as well.
The quarterly reported selling prices balance shot up to +73 from +43 in the November survey -- the highest since May 1991. The expected selling prices balance climbed to +74 from +42, its highest since February 1991.
However, the CBI said that some of February's increase was due to a 2.5 percentage point rise in value added tax at the start of this year, which in turned dented demand for big-ticket items.
Moreover, the fact that most Britons' wages are not keeping up with inflation was also likely to curb consumer spending this year, the CBI said.
"Retail sales are likely to be more challenging over the coming months," said Lai Wah Co, head of economic analysis at the CBI.
"At the same time, prices are set to rise considerably as the VAT increase and the soaring cost of raw materials are passed on to shoppers," she added.
The survey also showed that sales of household durable goods fell at their fastest pace since June 2009.
"With family budgets under increasing pressure, many shoppers are putting the purchase of big-ticket items on hold for the time being," said Judith McKenna, chief financial officer of supermarket chain Asda .


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