February 16, 2018 / 1:13 PM / a year ago

UPDATE 1-British shoppers' New Year diets squeeze January retail sales

    * Retail sales inch up 0.1 pct month/month in January
    * Surge in gym wear spending cancelled out by falling food
    * Weakest 3 months for retail sales since April 2017

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    By Andy Bruce and David Milliken
    LONDON, Feb 16 (Reuters) - British shoppers' New Year
resolutions to get fit proved less healthy for retailers last
month, as sales rose much less than expected and a longer-term
backdrop of rising prices and lacklustre wages also weighed on
    Even by the standards of a normal January, demand for gym
wear and sporting goods was unusually high - but this was not
enough to offset a chunky fall in the volume of food purchases,
the Office for National Statistics said on Friday.
    Overall, retail sales volumes rose 0.1 percent on the month,
well below forecasts in a Reuters poll for a monthly rise of 0.5
percent, after dropping 1.4 percent in December.
    In year-on-year terms, sales grew by 1.6 percent - the
fastest since August, but still right at the bottom end of
economists' range of forecasts. 
    "Analysts will no doubt be digesting these figures to
determine if this was a reflection of households setting about
2018 with the aim of shedding some pounds, or ... merely
symptomatic of the extent of the broader household cash squeeze
underway," Investec economist Victoria Clarke said.
    Britain's economy underperformed its rivals last year as
higher inflation - caused by the fall in the pound since June
2016's Brexit vote - hurt consumers' spending power, though
forecasts for a severe downturn proved too pessimistic.
    The Bank of England expects the consumer squeeze to ease in
2018 as inflation cools from near six-year highs and wage growth
ticks higher, although surveys of British households suggest
sentiment remains subdued.
    Andrew Sentance, a senior economic adviser to accountants
PwC and former BoE rate-setter, said it would take until the
second half of the year at the earliest until consumers felt the
benefit of lower inflation.
    Consumer price inflation hit its highest in more than five
years in November, at 3.1 percent, and has barely fallen since,
though the narrower gauge used for retail sales dropped to a
six-month low of 2.8 percent last month.
    "The first half of this year will continue to be a difficult
environment for retailers and other consumer-facing sectors,"
Sentance said.
    Last week the BoE forecast real-terms household consumption
growth would slow to 1.25 percent in 2018 from 1.5 percent in
2017 as demand shifted towards business investment and exports. 
    Looking at sales over the three months to January, which
smoothes out sharp moves caused by November's Black Friday
discounts, sales inched up just 0.1 percent after a rise of 0.5
percent in the three months to December, marking the weakest
three-month period since April 2017.
    The figures took some shine off sterling, which was headed
for its best weekly performance against the U.S. dollar in five
    In cash terms, spending in the three months to January was
4.4 percent higher than a year earlier, with 3.0 percent growth
in food spending. Shoppers are also stretching their budgets by
switch to cheaper food stores.
    Market research company Kantar Worldpanel said last week
that Tesco          was the top performer of Britain's four
largest supermarket groups over the 12 weeks to the end of
January, posting sales growth of 2.6 percent. All four lost
market share to discount chains Aldi and Lidl.

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