Big drop in retail spending

Debt-saddled Britons are spending less in the shops than a year ago for the first time in almost four decades.

Weekly retail sales of £4.6 billion last month were down 0.1 per cent on April 2004, according to official statistics published today. The last month in which that happened was May 1967.

The drop confirms fears that Britain's consumer boom has "hit the wall", with growing alarm over levels of debt, the slowing housing market and rising costs such as higher mortgage rates.

The Office of National Statistics said the biggest drop in spending was at shops associated with moving home such as DIY and furniture stores which saw takings down by six per cent. There was also a 4.4 per cent drop in department store spending - the biggest fall since detailed records began in 1986.

Mail order and internet sales rose by 7.4 per cent, and food was up 2.6 per cent - though that has a lower profit margin than other categories of spending. Another category to see an increase was clothing: 0.4 per cent, the smallest for three-and-a-half years.

Number crunchers are so shocked by the historic falls that the ONS has launched an investigation of the Sixties figures for trend comparisons. Economists believe this year's spending drop was partly due to an early Easter, which meant April did not benefit from the usual bank holiday boost. The seasonally adjusted figure was up 0.5 per cent.

Intense competition on the high street is also pushing prices down. Other factors that may have made April a particularly bad month for retailers include pre-election uncertainty and the timing of water and council tax bills.

Antrij Halushka, of the Centre for Economics and Business Research, said the spending falls are "staggering" and show that the underlying trend is weakening. "It shows that the consumer is much more reluctant to spend," the economist said. The response from Boots, which today reported an 11.4 per cent fall to £481 million, was to say it would keep cutting prices to woo shoppers.

It spent £200 million reducing prices on 2,000 items in the past year and has just pushed through another 400 cuts. The chain's figures came as Superdrug, number two retailer in this sector, announced plans to create 400 jobs by opening another 40 stores by the end of the year.

Profit at British Telecom, by contrast, rose by four per cent to just over £2 billion. Its 1.8 million shareholders were given a hefty increase in dividends to spend.