UK retail sales rise as stores offer discounts

LONDON - UK retail sales rose in October as shops offered discounts to lure consumers whose confidence has been undermined by inflation and rising unemployment.

Sales including fuel rose 0.6 percent from September, the most since June, the Office for National Statistics said on Thursday in London. The median forecast of 25 economists in a Bloomberg survey was for a 0.2 percent decline. On the year, sales were up 0.9 percent.

UK consumer sentiment fell to a record low last month as unemployment increased and inflation outpaced wage growth, while Bank of England Governor Mervyn King said on Wednesday the economy faces a "markedly weaker" outlook. The central bank, which is buying government bonds to aid the recovery as Europe's debt crisis escalates, held its key interest rate at a record low this month.

"At the moment, the only good news for consumers is that interest rates aren't likely to go up for a very long time," said Howard Archer, an economist at IHS Global Insight in London. "The squeeze from inflation will ease next year, but it's still going to be a hugely challenging environment for consumers."

The pound rose as much as 0.2 percent after the report.

Price promotions

In the three months through October, sales rose 0.3 percent from the previous quarter and were up by that amount on the year.

The statistics office said sales in October were boosted by promotions, particularly in the food sector, and pre-Christmas sales. J Sainsbury PLC started a price-matching campaign last month in response to Tesco PLC's so-called Big Price Drop promotion on 3,000 items.

Food sales rose 0.6 percent in October from September, Thursday's data showed. Sales in the "other stores" category jumped 2.7 percent, led by computers and telecoms, sporting goods and toys, and jewelers.

Excluding fuel, retail sales rose 0.6 percent on the month in October and were up 0.9 percent on the year.

William Morrison Supermarkets PLC, the smallest of the UK's four main food retailers, said on Nov 10 that sales growth accelerated in the third quarter as hard-pressed shoppers responded to promotions.

The annual retail-sales deflator, a measure of changes in shop prices, was 4.4 percent in October compared with 4.9 percent in September, the statistics office said. Excluding auto fuel, the deflator was 3.2 percent.

Unemployment

Data on Wednesday showed that the number of unemployed Britons rose to 2.62 million in the third quarter, the most since 1994. An index of consumer sentiment by Nationwide Building Society published on Thursday fell 9 points in October to 36, the lowest since the gauge began in May 2004.

Inflation was at 5 percent in October, while annual growth in pay excluding bonuses was 1.7 percent in the three months through September. Still, King said on Wednesday that he expects inflation to slow "sharply" in 2012 and that the slowdown in price gains will ease the squeeze on consumers.

Bloomberg News