Retail sales drop adds to evidence of slowdown

Fresh evidence of a slowdown in the economy emerged today when official data for high street spending last month showed the first drop since January. Adding to fears that the summer marked a peak in activity, the Office for National Statistics said retail sales volumes dropped by 0.5% between July and August. The ONS said the decline in spending had been across the board, with falls in sales of food, clothing and footwear. August's fall in retail sales followed a sharp increase in July, although the ONS today said this was 0.8% rather than the original estimate of 1.2%. Sales in August were just 0.4% higher than a year earlier, while the difficult trading conditions forced retailers to trim their prices. Today's figures, which were far weaker than the 0.3% increase forecast by the consensus of City economists, will add to speculation that consumer anxiety about looming public sector cuts is having an impact on spending behaviour. The retail sales data comes after Wednesday's news of a small rise in claimant-count unemployment and recent survey evidence suggesting a weakening of orders for manufacturers, construction firms and the service sector. Howard Archer at IHS Global Insight said the unexpected fall was "a nasty shock" and "deals a significant blow to growth hopes". He added: "Indeed, it will likely fuel fears of a double dip, given the importance of consumer spending to the economy and the fact that the fall in sales were broad-based in August. Furthermore, August's drop in retail sales occurred despite evidence that there was competitive pricing on the high street."