UK retail sales decline

January 17, 2002 Posted: 1442 GMT

LONDON (CNN) -- British retail sales fell unexpectedly in December for the first time in almost two years, indicating consumer demand may be cooling off.

December sales slipped 0.3 percent from November, the Office of National Statistics Office said. Analysts had forecast a 0.7 percent jump in December sales. The decline was the first monthly drop in retail sales since April 2000.

But sales for of all of 2001 rose 5.9 percent, up from 4.6 percent in 2000, marking the strongest annual sales rise in 13 years.

The ONS said the apparent discrepancy in the numbers was "due to strong November data rather than weak December data'," and that the retail sales demand remained strong.

It said textile, clothing and footwear sales volumes showed the largest fall in December, dropping 1.9 percent compared with the previous month. Household goods stores continued to register strong growth, with sales volume rising 1.1 percent from November.

Economists say last month's weak numbers could mean buying momentum is starting to run out of steam, and that trend will become more evident when January retails sales are released.

"We think consumer spending will slow down and we're starting to see some evidence of that," Philip Shaw, an economist with Investec Bank, told CNN before the announcement.

The mixed results did surprise some economists, who had expected consumer demand to be strong in December, given the UK's weak rate of inflation and low interest rates. Many of the UK's major retailers have reported healthy sales figures for the Christmas period.

Any apparent weakening in consumer spending may force the Bank of England to consider once again lowering interest rates or at least keeping the cost of borrowing on hold for at least the next six months.

Consumer spending accounts for about 60 percent of the UK's gross domestic product. In the past month, the BoE has indicated rates may have to go up if consumer spending continued to rise and threaten to overheat the economy.

The BoE has cut rates seven times in the past year. It keys rate now stands at a 37-year low of 4 percent.

--from staff and wire reports