June washout for retailers after prices are slashed

June washout for retailers after prices are slashed

Retailers slashed prices last month as they brought forward sales in response to the double whammy of one of the wettest Junes in recent memory and rising interest rates, according to official figures released yesterday.

Supermarkets and specialist food shops felt the impact of a barbecue-free summer, with sales down on the World cup-influenced June of 2006. The ONS said the 0.3% annual decline in sales volumes for food stores was the weakest for more than eight years.

Overall, the ONS said retail sales volumes were up by 0.2% in June, but the annual rate of growth fell from 3.9% in May to 3.4% last month. Department stores recorded the strongest performance, but the ONS said this was the result of discounting starting earlier than a year ago.

Retail experts said the problems shops were having in shifting stock was not just due to the weather but also due to the four interest rates rises between August last year and May. A fifth quarter-point increase to 5.75% was announced earlier this month, but was too late to affect the June data.

David Bush, head of Grant Thornton's retail services team said the bulk of the increase in spending had been "caused by promotional activity pulled forward as a response to the adverse weather conditions experienced in the UK. This has particularly been the case in the non-food sector.

"The most recent interest rate rises will not have fully impacted on these results, and therefore today's small increase.....continued below

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in retail sales volumes makes it less likely that we will see a further interest rate rise next month."

Paul Clarke, national director of the retail and wholesale sectors of Barclays business, said: "The rain has not encouraged shoppers, many already thinking about another interest rate rise, to visit Britain's high streets. Internet sales therefore have benefited with strong growth of about 15%.

"Retailers have responded by starting their summer sales earlier than usual, in a bid to shift their stock. Inevitably they will be concerned that this does not impact too heavily on their margins."

Separate evidence that higher interest rates are starting to slow the economy emerged from the latest figures for mortgage borrowing. Although gross lending reached a record level, the figure was inflated by re-mortgaging. Mortgage approvals - a guide to deals currently in the pipeline - moderated to £3.97bn in June from £4.24bn in May and a peak of £6.1bn in January. Approvals were down 22% year on year in June, while credit card borrowing fell for the 11th time in 13 months - by £0.1bn. Higher interest rates are clearly causing consumers to rein in their borrowing."

Howard Archer, chief economist at Global Insight, said: "The slower June mortgage activity occurred even before affordability pressures will have been magnified by July's interest rate hike. Indeed, housing demand will be pressurised over the coming months by rising affordability pressures stemming from higher interest rates, modest real disposable income growth and elevated house prices."

Britain's leading mortgage lender, the Halifax Bank of Scotland, said greater pressure on household finances following the string of rate rises is likely to reduce the rate of house price growth over the coming months.