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Britain's retailers announce today back-to-back falls in consumer spending during the normally vibrant months leading up to Christmas as deep cuts in borrowing costs from the Bank of England failed to lift the economic gloom.
After one consultancy warned yesterday that Britain would slip behind the eurozone laggard Italy in the international economic league table, the latest snapshot of the high street from the British Retail Consortium and KPMG said that the value of business in shops and stores fell in consecutive months for the first time since its survey began 14 years ago.
Total sales were 0.4% lower in November than a year earlier after a 0.1% annual decline in October. The BRC also measures sales on a like-for-like basis - stripping out the impact of floorspace added over the past year - and on this basis the value of business was 2.6% lower last month than in November 2007.
Stephen Robinson, director general of the BRC, said: "The numbers speak for themselves - these are clearly tough times. In the 14 years of this survey we have never recorded two consecutive months of total sales falls. Like-for-like sales have now fallen in eight out of the last nine months. All sectors are down apart from food and drink. Retailers will be hoping that customers have been putting off Christmas shopping, not cancelling it."
Helen Dickinson, head of retail at KPMG, said the worst-hit sectors were those related to the housing market, followed by clothing. "Consumers are focusing on basic spending. They are buying presents for their children, but what's going is anything but discretionary - the big-ticket items go first, then the stuff for an evening out."
Retailers are hoping that the VAT holiday announced in the pre-budget report and last week's cut in the bank rate to a 57-year-low of 2% will boost spending over the Christmas period. But Neil Saunders, consulting director of Verdict Research, said: "2009 is going to be one of the worst years on record for the high street. The consumer purse is under significant pressure and while a cut in VAT may help household budgets it is economic naivety to think it is going to make consumers embark on a spending spree."
The Centre for Economics and Business Research said that after ranking fourth behind the US, Japan and Germany in terms of the size of the economy earlier this decade, the UK would be relegated by a deep recession and the depreciation of sterling to seventh place in 2009.
Britain has already ceded fourth place to China and will be overtaken this year by France, the CEBR said. Next year Britain and Italy are both expected to suffer severe recessions but Italy's gross domestic product will have a higher market value than Britain owing to the weakness of the pound against the euro. The report said the UK's output at market exchange rates will edge down from $2.80tn (£1.9tn) in 2007 to $2.78tn this year, before falling sharply to $2.04tn in 2009. Italy's is expected to decline from $2.40tn to $2.17tn.
Ben Read, managing economist at the CEBR, said: "The UK economy overtook both Italy and France in the 1990s. However, this position was based on an over-valued sterling and debt-fuelled growth; it is set to be reversed."
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