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Respite in Sight for Declining UK Retail Sales
Feb 28, 2008

Consumer spending in the UK fell sharply, sending retail sales plummeting to a new low but with banks lowering interest rates, the damage is likely to reverse in near future.

A survey conducted by the Confederation of British Industry (CBI) revealed that the UK retail market experienced sharpest decline in retail sales in January 2008. The decline was worst in previous 14 months since November 2006, as reported by
Financemarket.

CBI found that the UK retail sales witnessed no growth, implying that consumer demand remains unaffected by concerns of a major decline in the economy this year. Similar, slump was experienced in December 2007 and retail sales went down by 0.4%.

The slowdown in the UK retail sales in January 2008 was also due to the hike in the interest rate by the Central Bank in July 2007 and it was the maximum hike in six years since 2001. It resulted in increased borrowing costs for the UK retail products which, in turn, sent consumer spending plunging to a record low in January 2008.

Besides, the UK retail sales were also badly hit by the dismal value of Pound against the Euro since December 2007. The decline in the Pound was up to 0.6% against dollar and 0.6% against Euro in December 2007.

The drastic drop in consumer spending in the UK was also because of a major slowdown in the UK housing market, leading to intensified pressure on household budgets during a period when financial markets were volatile. Escalation in home prices in the initial 11 months of 2007 resulted in a tendency to spend more on the purchase of new houses in January 2008.

The dismal performance by the retail industry in the UK prompted the Bank of England to provide some relief in the form of lower interest rate in February 2008 with the aim of raising consumer spending.

According to a Research Analyst at
RNCOS, “The UK retail industry was unable to bear the impact of declining consumer spending. And ailing economy too took its toll on retail sales. However, the timely intervention by banks by reducing interest rates may reverse the effect (in terms of consumer spending) in short-term. It will prove as potion for retailers who are reeling under the impact of continuing losses.”

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