Credit crunch sees shop spending plunge

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Sales plunged 3.9% last month, far more than most City analysts hadbeen forecasting, suggesting that the credit crunch is tighteningits grip on household finances.
The fall was the biggest recorded by the Office for NationalStatistics since it began measuring retail sales on a monthly basisin 1986 and increased worries about the British economy tippinginto recession.
It also raised expectations in the City that the next cut ininterest rates might come sooner than the end of the year with theBank of England forced to act to stop the economy going intofreefall. The pound dropped nearly 1.5 cents against the dollarafter the figures were released.
The growing sense of crisis on the high street was increased bygrim trading figures from trainers and replica football kit chain JJB Sports , which reported a two per cent fall in sales at its 425 stores.
Chairman Roger Lane-Smith said: 'The management remain cautiousabout the outlook for the remainder of 2008 in view of thedifficult retail environment.î He added that the second halfof the year would be 'very challenging'.
The figures come days after the collapse into administration of theGeneral Trading Company near Sloane Square, the 88-year-old storewhere Princess Diana and Camilla Parker Bowles lodged their weddinglists.
Last month's fall in spending reversed an unexpectedly buoyantfigure for May, which many analysts dismissed as a blip. The annualrate of growth of retail sales is now down to 2.2% compared with7.9% in May.
David Buik of City bookmakers BGC Partners said: 'We always knewthat retail sales for June were going to be ghastly, and so theywere.'
A succession of retailers have reported weak or disastrous tradingfigures in recent weeks, pointing towards another drop in consumerspending when this month's figures are released. Marks & Spencer said at the start of this month that sales had dropped 5%, themost since 2005.
Even supermarkets and other food stores - generally thought quitesafe in a downturn - did not escape the 'shoppers' strike' withsales down a record 3.6%. However, yearon-year they are up ahealthy 6.5%. For non-food stores the monthly drop was 4.5%. Onlythe West End appears to be bucking the trend.
Tourists boosted sales by 8.7% on the year.
The City will be poring over a trading statement from Next and results from the Carphone Warehouse due next week for more signs of deterioration.
The slide in spending means retailers have very little scope forpassing on cost increases to consumers which will bite into theirprofit margins.
Economists said they expected the slide in sales to continue asrising mortgage payments, utility and food bills and risingunemployment all take their toll on disposable income.
Howard Archer, chief European and UK economist at forecastersGlobal Insight, said: 'The prospects for consumer spending over thecoming months continue to look pretty bleak.
'Major concerns over the economy, higher debt levels andincreasingly rising unemployment are all dampening factors forconsumer spending.'