UK retail sales plunge at fastest annual pace since 2009: Survey

Brexit vote in June 2016 led to big fall in the value of sterling, which has pushed up inflation

British retail sales plummeted in October at the fastest pace since early 2009 when the country was last in recession, according to a survey that could deepen economists' doubts about the wisdom of raising interest rates next week.

With the economy having perked up slightly in the third quarter, it looks very likely that the Bank of England will in a week's time deliver Britain's first rate hike in more than a decade.

However, more than two-thirds of economists in a Reuters poll published on Tuesday said now was not the time for a hike.

That majority view was bolstered by Thursday's data from the Confederation of British Industry (CBI), which said its monthly retail sales gauge fell to — 36 this month from a two-year high of +42 in September, marking its lowest level since March 2009.

The reading was far below even the lowest forecast in a Reuters poll of economists, most of whom expected a reasonably modest slowdown in growth.

While the CBI survey is extremely volatile from month to month, the three-month average balance for reported retail sales sank to — 1 from +18 in September — a 13-month low.

Despite Wednesday's encouraging third-quarter GDP reading, the outlook for the economy in coming months is mixed at best, and further complicated by uncertainty around the Brexit process.

JPMorgan economist Allan Monks said he tended to take Britain's array of monthly retail surveys with a pinch of salt, but added that Thursday's CBI survey raised concerns about momentum in the consumer economy.

"We don't think this changes the BoE decision next week. But it could influence the degree of caution the (Monetary Policy Committee) expresses about the near-term outlook," he said in a note to clients.

The volume of orders that retailers placed with their suppliers also contracted at the fastest rate since 2009, the CBI said.

In the past, this measure has linked well with the monthly IHS Markit/CIPS gauge of activity among consumer goods manufacturers.

"It's clear retailers are beginning to really feel the pinch from higher inflation," said Rain Newton-Smith, the CBI's chief economist.

"While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand."

The Brexit vote in June 2016 led to a big fall in the value of sterling, which has pushed up inflation, gnawing at consumers' disposable income this year.

Earlier on Thursday, the British Retail Consortium reported that retailers cut jobs over the past three months at the fastest rate since comparable records began in 2008.

It cited a combination of technological change and government policies that pushed up employment costs as the main reasons for the fall.