Retail sales in the UK sank to a new low in January 2008 due to the slowdown in the country’s economy as well as a drop in the housing prices.

A survey conducted by the Confederation of British Industry (CBI) revealed that retail sales in January 2008 were the poorest in 14 months since November 2006, as reported by Financemarket.

CBI predicted zero growth in the UK retail sales because of the slowdown in consumer demand, creating worries about a major economic decline in 2008. In January 2008, there was a drop in retail sales from +8 in December 2007 to +4. The pressure on the country’s economy is however demonstrated in the 0.4% decrease in the UK retail sales in December 2007.

Industry experts opined that the sluggish growth in the UK retail sales in January 2008 is due to the slow pace of growth in the UK economy. Hike in interest rate by the Central Bank in July 2007 reached a peak since 2001 and boosted the borrowing cost for the retail products. The implications of high interest rate continued to be felt in the UK retail sales with consumer spending plunging to a record low in January 2008.

Another reason for slow growth rate in the retail industry is falling home prices in the UK. The initial 11 months of 2007 experienced home prices increase in the country. However, the sluggish housing market in December 2007 prompted lenders to slash the mortgage rate. In January 2008, consumers were more willing to spend on new houses, compromising their willingness to expend too much on retail purchases as it would have affected their household budget.

In view of the slow growth rate in the retail industry, the Bank of England has felt the need to bring down the interest rate in February 2008. With lower interest rate, there is a possibility that consumer spending will climb up.

According to a Senior Research Analyst at RNCOS, “The sluggish consumer spending is crippling the UK retail industry. In order to bring back the retail industry on track, retailers have to frame new strategies, like providing discounts on retail products, and come up with innovative schemes like free gifts as a means to lure increasing number of consumers to the retail market.”