Retailers urge Bank not to raise rates amid weak sales growth
Financial Times
By Scheherazade Daneshkhu, Economics Correspondent
Published: June 5 2007 03:00 | Last updated: June 5 2007 03:00

The British Retail Consortium yesterday urged the Bank of England to refrain from raising interest rates this week after it blamed earlier increases and rain in May for sales growing at their weakest rate in six months.

Total sales were up by 4 per cent in May, down on April's 4.7 per cent and below the 4.8 per cent average for 2006, the consortium reports today. Like-for-like sales, stripping out the effect of increased shopping, grew by 1.8 per cent, which was also the lowest rate since November 2006.

Retailers said clothing and footwear sales were particularly hard hit by the poor weather after a warm April. Do-it-yourself and gardening sales also suffered. The BRC said a reluctance to buy big ticket items reflected weak consumer confidence.

The Bank raised rates in May for the fourth time in nine months.

Kevin Hawkins, director-general of the BRC, said: "The Bank should think twice before putting up rates again in the near future."

A survey of 61 economists published last week by Bloomberg found only four expected the Bank to put up rates to 5.75 per cent this week. But 43 out of 48 expected the Bank to make the quarter-point rise at or before its August meeting.

Gavin Cameron, reader in economics at Oxford University, said: "The Bank of England has not raised interest rates in two consecutive months since May/June of 2004. Although some inflation hawks argue it might resort to such a tactic again this month, continued slack in the labour market and benign wage growth suggest the next rate rise may wait until later in the summer."

The BRC sales monitor has not always been a reliable indicator of the official retail sales volumes, nor of total consumer spending, which includes outlays on services and utilities. But the slowdown is consistent with some signs of a more wary consumer. In the housing market mortgage approvals have been falling, and official retail sales figures published last month showed a small drop in the volume of retail sales between March and April.

However, house price growth is still robust and the CBI employers' group published a distributive trades survey which found strong consumer demand had encouraged retailers to push up prices at their fastest rate in nine years.

Nevertheless, the BRC report could be a sign that the one percentage point rise in interest rates since last August may be starting to weigh on consumers and encourage the Bank to hold fire for this month at least.


Higher interest rates squeeze shop sales
Ashley Seager
Tuesday June 5, 2007
The Guardian

Signs that the British consumer might finally be cowed by rising interest rates emerged today from a survey showing the slowest growth in shop sales last month since November.
The British Retail Consortium's (BRC) monthly snapshot of retailers showed annual growth of just 1.8% in May, down from 2.4% in April and 3.9% in March. Those figures were on a "like-for-like" basis which strips out the addition of floor space by retailers.

Total sales were up 4% year-on-year, also the weakest since November. The three-month rolling average for like-for-like sales slowed to 2.8% from 3.3% in April. Consumer spending, has appeared resilient to a succession of interest rate rises since last August which have pushed bank rates up to a 6-year high at 5.5%.
The Bank of England's monetary policy committee deliberations begin tomorrow with analysts saying another rise is possible as the MPC is worried about growing pricing power among firms.

BRC director-general Kevin Hawkins said: "Although the weather was bound to depress sales growth, many of our members believe that the cumulative effects of the recent rate increases are now beginning to show up in these figures. The Bank should think twice before putting up rates again in the near future."

Dr Gavin Cameron, an economist at Oxford University, said: "The Bank will continue to be vigilant about inflationary pressure, and particularly about continued price rises in food, non-alcoholic beverages and tobacco."

A survey of economists by Reuters yesterday showed that 53 of 58 polled expected the MPC to leave rates on hold this week, with only five predicting a rise."

Tough month for retailers makes rate rise unlikely
The Independent
By Jane Padgham
Published: 05 June 2007

A double whammy of higher interest rates and cold, wet weather made May a wash-out for retailers, according to a survey out today.

In findings that will cement expectations that the Bank of England will freeze borrowing costs this week, the British Retail Consortium said the high street suffered its worst month since last November as stretched consumers shunned new spring fashions. Like-for-like sales were only 1.8 per cent higher in May than a year earlier, down from 2.4 per cent in April and less than half March's 3.9 per cent.

The three-month trend rate of growth, which irons out monthly fluctuations, fell back to 2.8 per cent from 3.3 per cent in April.

The BRC said clothing and footwear sales suffered the biggest decline as the weather deteriorated after a warm April. The DIY and gardening sectors were also hit by the cold and rain, and big-ticket purchases continued to be disappointing. Smaller homewares, toiletries and cosmetics held up well, but food sales were less good than earlier in the year.

Kevin Hawkins, the BRC's director general, said: "Although the weather was bound to depress sales growth, many of our members believe that the cumulative effects of the recent rate increases are beginning to show up in these figures. The Bank should think twice before putting up rates again in the near future."

The Bank's Monetary Policy Committee has raised rates four times since last August in an attempt to drag inflation, running at 2.8 per cent, back to its 2 per cent target. The vast majority of City pundits - 55 out of 58 analysts polled by Reuters yesterday - predict it will peg rates at the prevailing 5.5 per cent when its two-day meeting wraps up on Thursday. However, at least one more quarter-point increase is expected over the summer amid signs that firms are regaining pricing power.

Helen Dickinson, head of retail at KPMG, said sales in all clothing sectors were down in May compared with a year earlier. "The poor weather over both bank holiday weekends really had an impact, particularly for children's clothing and footwear," she said. "All in all, the results for May - and those for April for that matter - are below the trend of the first quarter of the year and represent the beginning of a lower growth phase."

Today's report is at odds with last week's retailing survey from the CBI. Although only covering the first half of the month, the CBI said sales growth remained buoyant in May.

Dr Gavin Cameron, a reader in macroeconomics at Oxford University, said supermarkets and other grocers would benefit from strong price rises in food, but prospects for non-food retailers were bleak. "A slowdown in the housing market is likely to have consequences for major household appliance, furniture and furnishing sales, which comprise most of the few non-food retail sectors to show any signs of price rises this year," he said. "In this light, the Bank should be cautious about raising rates too vigorously."


Higher rates and poor weather put damper on May retail sales
Herald
IAN McCONNELL, Business Editor June 05 2007

Bad weather on both bank holiday weekends in May hit retail sales.
Annual UK retail sales growth slowed in May, reflecting at least partly the poor weather on both bank holidays, according to figures out today from the British Retail Consortium.

The BRC said its members also believed the slowdown reflected the cumulative effect of recent rises in interest rates on consumers and it urged the Bank of England's Monetary Policy Committee to "think twice before putting up rates again in the near future".

Although another rise in interest rates this week is still viewed as an outside bet, the risk of such a back-to-back increase has grown significantly amid ever-more signs that companies have much greater pricing power.

Sterling remained firm yesterday as financial markets remained on UK interest-rate alert. The pound hit 242.62 - its best level against the Japanese currency since September 1992. Sterling was last night up about 1.35 cents on its pre-weekend close in London at around $1.9925.

Further key clues on this week's rate call, which will come at the end of the MPC's next two-day monthly meeting at noon on Thursday, could emerge today in the Chartered Institute of Purchasing and Supply's latest survey of the UK service sector.

In particular, further signs that service companies are confident about pushing through more price increases could have some MPC members reaching for the interest-rate trigger again.

Only five of 58 economists polled by Reuters between Friday and Monday forecast a quarter-point rise on Thursday. However, the probability of a move on Thursday is much higher than suggested by this bald proportion.

Global Insight economist Howard Archer has put the chance at 35%, while one financial markets dealer estimated it at 20% yesterday.

The BRC said total retail sales value in May was 4% higher than in the same month last year. While down on an annual rate of increase of 4.7% in April, this is still a relatively healthy increase.

Especially in light of the poor weather on the key May trading days, the slowdown in annual sales growth would seem unlikely to make the MPC unduly worried that consumer spending could weigh harmfully on overall economic expansion any time soon.

Taking the latest three months together to smooth out volatility, annual growth of total sales value dipped only marginally to 5% in May from a rate of 5.5% in April. This 5% rate is still punchy.

Stripping out the beneficial impact of expansion of retail space, to give a measure of how retailers are faring rather than of overall consumer spend, the BRC said annual growth in like-for-like sales dipped from 2.4% in April to 1.8% last month.

The impact of the weather on sales was writ large in particular weakness in clothing and footwear sales in May. In contrast, sales of food, drink, toiletries, and cosmetics were strong.

Helen Dickinson, head of retail at survey sponsor and accountancy firm KPMG, said: "The volatility in the clothing sector continues.

This month (May), all the clothing sectors reported negative like-for-like sales compared with the same period last year.

"The poor weather over both bank holiday weekends really had an impact, particularly for children's clothing and footwear. It was the food and drink and the toiletries and cosmetics sectors which outperformed the overall result of 4% (annual) total sales growth for the month.

"All in all, the results for May, and those for April for that matter, are below the trend of the first quarter of the year and represent the beginning of a lower-growth phase as the comparatives become tougher and the outlook less favourable."

Kevin Hawkins, director-general of the BRC, kept up the lobbying group's longstanding opposition to higher rates.

He said: "Although the weather was bound to depress sales growth, many of our members believe that the cumulative effects of the recent rate increases are now beginning to show up in these figures. The Bank should think twice before putting up rates again in the near future."

The MPC has raised UK base rates by a quarter-point on four occasions since the latest monetary tightening phase began in August last year. The most recent increase, to 5.5%, came on May 10, and economists are warning of an increasing danger of an eventual move to 6% later this year.

Gavin Cameron, the reader in macroeconomics at Oxford University commissioned by the BRC to opine on its survey, said: "The Bank of England has not raised interest rates in two consecutive months since May/June of 2004.

"Although some inflation hawks argue it might resort to such a tactic again this month, continued slack in the labour market and benign wage growth suggest that the next rate rise may wait until later in the summer."