Budget set to dent growth in retail sales

Retail sales grew for the fourth consecutive month in October and at a better- than-expected rate. However, next week’s budget is still expected to curb growth.

Updated figures released yesterday from the CSO show the volume of retail sales in October grew 1.7% on the preceding month and 3.1% on a year-on-year basis.

While further growth had been anticipated, the rate of increase was expected to be much lower and less than 1% on a monthly basis and just over 1% on an annualised reading.

On a value basis, October sales were up by 1.6% in the month and 3.6% year-on-year. As expected, the volume increase was dominated by electrical goods sales — particularly the purchase of new televisions in the wake of the analogue-digital switchover.

However, nine of the 13 measured areas of the monthly retail sales index recorded month-on-month value and volume growth. But caution is still being stressed by commentators.

Chief economist with NCB Stockbrokers, Philip O’Sullivan said: “While this points to a continuation of the healthy retail sales trends, observed during the third quarter, our sense is that the further tax increases and spending cuts due to be unveiled in next week’s budget, represent a near-term headwind for the retail sector.”

Small firms lobby group ISME said it is absolutely essential that nothing is done in the budget to undermine consumer confidence and reduce demand. The organisation has also called for the establishment of a retail strategy group to advise an “out-of-touch” Government.

“The retail sector is hanging by a thread. Any further policies, by government, that lead to cost increases or undermine consumer confidence will have a devastating impact on a sector that has been haemorrhaging jobs for the last number of years,” said ISME chief, Mark Fielding.

“The total lack of any government initiative for the retail sector clearly demonstrates the Government’s ‘it’ll be all right on the night’ attitude to the economy, hoping for a global upturn to get us out of the recession,” he added.

Elsewhere, Retail Excellence Ireland claimed the retail sector remains in “a state of great distress”.

Merrion Capital’s Alan McQuaid said that while the household sector remains under immense pressure, this year’s full decline in consumer spending shouldn’t be as bad as first thought.

However, while the sustained strength in retail sales is likely to be temporary, the next big metric will be today’s quarterly employment data update — which will be viewed as a huge barometer for consumer spending patterns.