Warning over retail trading gains

Recent signs of life on the high street are unsustainable

Recent signs of life on the high street are unsustainable and a lasting recovery may not emerge until 2011, a leading ratings agency has warned.

Fitch poured cold water on positive trading figures from the likes of fashion chain Next as well as a better than expected 1.2% rise in overall retail sales volumes between May and June.

But Fitch said the revival was temporary as trading was given an artificial boost by a later Easter, better weather and many chains beginning sales early.

"Rather than signalling an economic recovery, the recent better-than-expected trading results have been boosted by temporary factors such as weather and early aggressive promotional activities and clearance sales," retail and consumer analyst Ching Mei Chia said.

Last week, Next said the fine weather in the first half of its trading year had added between 2% and 3% to sales.

B&Q owner Kingfisher meanwhile saw a second successive quarter of sales growth amid faltering competition, and better weather boosting sales of outdoor products.

Fitch added that retailers' margins had been squeezed by the sales and they could also find themselves unable to withdraw promotions without suffering a blow to revenues as shoppers become accustomed to price cuts.

UK output fell 0.8% between April and June - the fifth successive quarter of the recession. Fitch expects marginal growth of just 0.8% for the whole of next year and rising dole queues - heaping more pressure on the sector.

Ms Chia said: "A longer-term concern is that unemployment is expected to continue to rise well into 2010 even as the UK economy stabilises, suggesting a recovery of the retail sector will lag the broader economy.

"Consumer spending will be constrained through 2010, likely delaying a lasting recovery for UK retailers into 2011."