U.K. Retail Sales May Drop in 2011 on Budget Cuts, Report Says

By Armorel Kenna

Nov. 9 (Bloomberg) -- U.K. retail sales may fall next year amid lower disposable income and falling consumer confidence as the government slashes spending to balance the budget, according to Deloitte LLP.

Retail sales in the U.K. may not rise in 2011 and there is a “distinct” possibility that they will fall, Richard Hyman, strategic retail adviser to Deloitte, said in a statement. “Another year of flat sales growth in U.K. retail would represent an achievement,” he said.

The U.K. last month set out plans to balance its budget, cutting a total of 490,000 public sector jobs and withdrawing child benefits from higher earners. Value-added tax in the country will increase to 20 percent from Jan. 4, also affecting sales, Deloitte said.

A third of consumers think their personal finances will deteriorate, while 38 percent expect the economy to get worse, according to a Deloitte consumer survey. Seventy-six percent of consumers would spend less on household goods and clothing if forced to make cutbacks, the advisory firm said.

Christmas retail sales may increase 1 percent, bringing sales in December to 37 billion pounds ($60 billion), Deloitte said.

“Each year, consumers tell us they will do whatever they can to enjoy Christmas and this year will be no different,” Ian Geddes, head of retail at Deloitte, said in the statement.

Deloitte said that most people continue to spend on Christmas with 71 percent of U.K. consumers planning to spend the same or more on gifts than last year, according to the survey of 20,000 consumers across Europe, including 2,000 in the U.K. Deloitte said the Christmas trend is similar in most countries, apart from Greece, where more than half of consumers said they would spend less.

--Editors: Jerrold Colten, Paul Jarvis

To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net