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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

UK Retail Sales Crash, No Vadera Green Shoots Visible

Economics / Recession 2008 - 2010 Jan 15, 2009 - 02:49 AM GMT

By: Nadeem_Walayat

Economics Best Financial Markets Analysis ArticleDespite the hype of deep discounting, the retail sales figures released today by major high street retailers shows sales slumping by between 7.5% and 10% which clearly demonstrates that the long experienced shoppers to a large degree did not get caught up with sales frenzy of previous years and refused to fall for the sales gimmicks where actual real discounting was few and far between. This coupled with the economy falling of the edge of a cliff despite green shoots ramblings by Labour's Shriti Vadera, sets a bleak scene for retailers for the whole of 2009 as my earlier analysis pointed out that the 30% crash in sterling will lead to higher restocking costs, whilst at the same time consumers increasingly expect discounting and therefore put off purchasing for the closing down sales.


Retailers Sales Crash

Retailers reporting like for like sales drops against the same period last year.

  • Dixon's / Curry's / PC World -10%
  • Argos -7.5%
  • Homebase -10%

Retail Sales Deflation

The trend and inflation adjusted retail sales data continues to represent the real state of the UK retail sales market that continues to deflate at a rate of -1.2% on a year earlier for November data.

Retail sector deflation continues to claim major retailers as its most public victims to date include the major high street chains of Woolworth's , Zavvi and Adams, that collectively account for some 50,000 jobs. The expectation that over Christmas and January retail sales activity 'should' rise due to discounting and the closing down sales has failed to materialise despite our European and American cousins boosting retail sales volume by benefiting from the 30% crash in sterling which means the already liberally advertised 20% discounts translate into a 50% discount for European shoppers, much as Briton's benefited not so long ago from the cheap shopping trips to New York at an exchange rate north of £/$2.00.

However as earlier analysis suggested that the fall in sterling will result in much higher high street consumer prices during 2009 as those retailers that have not gone bust seek to replenish stocks at much higher prices during 2009. This confirms analysis that the January Sales for Britons may prove to be more illusionary than real as the fall in sterling has already soaked up corporate margins, which again confirms that those UK shoppers seeking to make large purchases are probably better off to do so sooner rather than later.

UK Heading for Real Deflation During 2009

The UK economy is heading for real deflation as the UK inflation forecast for 2009 concluded, with the RPI measure is expected to go negative and target -1.2% by July 2009.

UK Interest Rates Crashing Towards 1%

This months interest rate cut of 0.5% for January is inline with my forecast for interest rates to target a fall to 1% by mid 2009 as the below graph illustrates. However given the deteriorating state of the UK economy there is a risk that rates could overshoot to the downside during mid 2009 by falling below 1%. As the credit markets have frozen the real economic rate has become far less responsive to base rate cuts, therefore the latest cut is expected to make very little difference to the severity of the recession, thus the buzz word for 2009 is "Quantative Easing" which basically means printing money, the consequences of which will be higher inflation as we come out of economic contraction.

UK Housing Market Crash and Depression

UK house prices continued to crash lower, with the latest data from the Halifax showing average house prices falling by £4,400 in December. The house price data is inline (-0.5% deviation) with the recently updated house price forecast that covers the trend into 2012 that projects for a total drop from peak to trough of 38%, with a 16% drop in house prices targeted for 2009 to be followed by a sustained depression for several years thereafter as the below graph illustrates.

UK house price forecast

To receive my latest analysis and forecasts during 2009 in your inbox on the date of publication subscribe to my always free newsletter .

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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