Retailers Expose Dramatic Weakness in U.K. Economy

NEW YORK ( TheStreet) -- So what if the U.K. economy grew 0.8% in the three months from April to June? Those statistics don't reflect the true state of the souring U.K. economy. You want proof? Look no further than the retail scene in Great Britain.

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According to consultancy firm Kantar, grocery store sales in the U.K. reached a 10-year low in the 12 weeks ended Aug. 17, declining 0.8%. Grocery price inflation declined 0.2%, representing the 11th consecutive period of decreases, due to intense pricing competition. It was the weakest reading since October 2006.  Sales for U.K.-based grocery store retailers  Tesco  ( TSCDY) and Wm. Morrison fell 0.4% and 1.9%, respectively, while Asda, which is owned by  Walmart ( WMT) , notched a 1.2% increase, slightly ahead of rival  Sainsbury's 0.3% improvement.

The sales sluggishness has not been confined to the grocery store sector.  U.K. retail sales excluding fuel sales have declined in four of the past seven months, per data from Bloomberg.  July retail sales rose 0.5% according to the Office for National Statistics, following a 0.1% decrease in June, and came despite an 0.8% jolt from clothing and footwear sales. Holding down July sales was none other than food -- sales by volume fell 1.3% from a year earlier, the first annual decline on record, reflecting price wars in grocery store aisles.  

Tesco's Aug. 29 second-quarter earnings warning punctuated the challenging sales environment for U.K. grocery retailers.

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