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Shock drop in U.K. retail sales hits recovery hopes

A couple walk past a shop window in London Nov. 13, 2012.


Retail sales in Britain posted a surprise fall in October as shoppers cut back on food and clothing purchases, data showed on Thursday, reducing the chances consumers will boost the economy in the final quarter.

Sales volumes including automotive fuel fell 0.8 per cent on the month to give an annual rise of 0.6 per cent, the Office for National Statistics said. Both numbers were the weakest since April and disappointed economists' forecasts.

Food stores reported the biggest monthly decline in sales since November, 2011.

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Britons have been suffering the worst squeeze in income for more than 30 years as soaring food and fuel prices as well as higher taxes have eaten away meagre pay rises, and many have cut back on non-essential spending.

Meanwhile, earlier this month electrical retailer Comet collapsed into administration, becoming the latest high-street victim of Britons' reluctance to spend.

The ONS said retail sales excluding fuel fell 0.7 per cent on the month and were 1.1 per cent higher than in October, 2011.

Retail sales inched up by a meagre 0.2 per cent between August and October compared to the previous three months.

On Wednesday Bank of England Governor Mervyn King warned the economy might shrink again in the final three months of the year, having just exited recession in the third quarter.

Central bankers have been pinning great hopes on a revival of consumer spending, but British inflation hit a five-month high of 2.7 per cent in October, putting that in doubt because wages are rising at a much slower pace.

The gap between price and wage rises is likely to persist, with the Bank predicting inflation would remain above its 2 per cent target over the next 18 months.

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However, some retailers have not written off the crucial Christmas trading period yet: on Sunday the country's biggest department store group John Lewis said Christmas shopping had got off to a strong start.

And a survey by business lobby CBI showed late last month that retailers expected a pick-up in sales in November.

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