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UK retail sales slump in December as inflation bites UK retail sales slump in December as inflation bites
(35 minutes later)
Britain’s retailers suffered a surprise end-of-year slump in sales in a sign that rising prices since the Brexit vote are starting to hit people’s spending power.Britain’s retailers suffered a surprise end-of-year slump in sales in a sign that rising prices since the Brexit vote are starting to hit people’s spending power.
Sales volumes dropped by 1.9% in December, the retail industry’s crucial Christmas month, according to official figures. That was the biggest drop since April 2012 and far worse than forecasts for a 0.1% dip in a Reuters poll of economists. The news contrasted with the largely upbeat tone of retailers’ Christmas trading updates but echoed signs of a December slowdown in spending from debit card companies. Sales volumes dropped by 1.9% in December, the retail industry’s crucial Christmas month, according to official figures. That was the biggest drop since April 2012 and far worse than forecasts for a 0.1% dip in a Reuters poll of economists.
The Office for National Statistics said sales volumes were up 4.3% on a year earlier, compared with a forecast for 7.2% growth. The news contrasted with the largely upbeat tone of retailers’ Christmas trading updates but echoed signs of a December slowdown in spending from debit card companies.
The Office for National Statistics (ONS) said sales volumes were up 4.3% on a year earlier, compared with a forecast for 7.2% growth.
Consumer spending has been the main driving force behind the UK’s relatively strong economic growth since the EU referendum. But the slowdown in retail sales fanned fears that consumers will struggle keep up that support to the economy.Consumer spending has been the main driving force behind the UK’s relatively strong economic growth since the EU referendum. But the slowdown in retail sales fanned fears that consumers will struggle keep up that support to the economy.
Worries stem from the pound’s sharp drop since the vote to leave the EU, which has pushed up the cost of imports. Companies appear to be passing that on to consumers and the UK’s main inflation rate hit a two-and-a-half-year high in December. If wages fail to keep pace, people will end up worse off in real terms. Worries stem from the pound’s sharp drop since the vote to leave the EU, which has pushed up the cost of imports. Companies appear to be passing that on to consumers and the UK’s main inflation rate hit a two and a half year high in December. If wages fail to keep pace, people will end up worse off in real terms.
Reflecting those worries, the pound dropped markedly on the retail sales news to below $1.23, a drop of 0.5% from the day before.Reflecting those worries, the pound dropped markedly on the retail sales news to below $1.23, a drop of 0.5% from the day before.
Reacting to the retail sales news, Alan Clarke, an economist at Scotiabank, called it a “disastrous December” and pointed to the effects rising inflation.“We know from the CPI [inflation] data earlier in the week that prices rose more than expected in December and now we also know that sales volumes fell. This is likely to be the theme for the rest of the year – higher prices will reduce disposable income and hurt consumer spending growth,” he said. Reacting to the retail sales news, Alan Clarke, an economist at Scotiabank, called it a “disastrous December” and pointed to the effects rising inflation.“We know from the CPI [inflation] data earlier in the week that prices rose more than expected in December and now we also know that sales volumes fell.
“This is likely to be the theme for the rest of the year – higher prices will reduce disposable income and hurt consumer spending growth,” he said.
But the Office for National Statistics noted that taking the final three months of the year together retail sales were up 1.2%. That will buoy hopes that consumers still managed to support a solid pace of overall economic growth in the fourth quarter.But the Office for National Statistics noted that taking the final three months of the year together retail sales were up 1.2%. That will buoy hopes that consumers still managed to support a solid pace of overall economic growth in the fourth quarter.
Commenting on the figures, ONS senior statistician Kate Davies said: “Retailers saw a strong end to 2016 with sales in the final quarter up 5.6% on the same period last year, although the amount bought fell between November and December once the effects of Christmas are removed.Commenting on the figures, ONS senior statistician Kate Davies said: “Retailers saw a strong end to 2016 with sales in the final quarter up 5.6% on the same period last year, although the amount bought fell between November and December once the effects of Christmas are removed.
“There were some notably strong figures from smaller retailers, in particular butchers, who reported a significant boost in sales in the run up to Christmas.”“There were some notably strong figures from smaller retailers, in particular butchers, who reported a significant boost in sales in the run up to Christmas.”
The ONS reported that small businesses enjoyed an estimated 17.4% rise in sales compared with December 2015. Feedback from businesses, such as butchers, suggested that meat purchases in preparation for Christmas had contributed to good sales, in addition to an extra trading day this December. Other small stores also benefited from Christmas sales. The largest contribution to the month-on-month fall in sales came from non-food stores, it added. The ONS reported that small businesses enjoyed an estimated 17.4% rise in sales compared with December 2015. Feedback from businesses, such as butchers, suggested that meat purchases in preparation for Christmas had contributed to good sales, in addition to an extra trading day this December.
The Bank of England, which cut interest rates to a record low after the Brexit vote, has highlighted the role of consumers in propping up growth in recent months. Its governor Mark Carney commented this week that “households appear to be entirely looking through Brexit-related uncertainties”. Other small stores also benefited from Christmas sales. The largest contribution to the month-on-month fall in sales came from non-food stores, it said.
Carney also flagged a pick-up in consumer borrowing and signs that people were dipping into their savings to carry on spending. The Bank of England, which cut interest rates to a record low after the EU referendum, has highlighted the role of consumers in propping up growth in recent months.
Paul Hollingsworth, UK economist at the consultancy Capital Economics said the retail sales figures might provide some relief on that front. Its governor commented this week that “households appear to be entirely looking through Brexit-related uncertainties”. Mark Carney also flagged a pickup in consumer borrowing and signs that people were dipping into their savings to carry on spending.
Paul Hollingsworth, UK economist at the consultancy Capital Economics, said the retail sales figures might provide some relief on that front.
“The slowdown in spending growth should help to calm fears that low interest rates are driving an unsustainable credit-fuelled consumer boom. And we expect spending growth to lose some more pace over the coming year as inflation picks up and squeezes growth in households’ real incomes,” he said.“The slowdown in spending growth should help to calm fears that low interest rates are driving an unsustainable credit-fuelled consumer boom. And we expect spending growth to lose some more pace over the coming year as inflation picks up and squeezes growth in households’ real incomes,” he said.
“But with interest rates set to remain low and the cost of servicing debt very manageable, as well as strong confidence by past standards, we expect spending growth to slow, rather than grind to a halt.”“But with interest rates set to remain low and the cost of servicing debt very manageable, as well as strong confidence by past standards, we expect spending growth to slow, rather than grind to a halt.”