Retail sales suffer worst December since records began

Official figures prove that December was a rotten month for retailers. Not surprising, perhaps - but not good news for the economy...

by Emma Haslett
Last Updated: 06 Nov 2012

Disappointing news from the Office for National Statistics today: retail sales in December were 0.8% down on the previous month and more or less flat year-on-year - the high street's weakest performance since records began in 1998. As surprising news stories go, this might seem on a par with Jordan and Alex Reid's 'shock split', given all the pre-Christmas snow chaos. It was, after all, the coldest December in 100 years. And there is a chance that we just saved all our spending for the sales. But the glass-half-empty scenario is that the great British belt-tightening exercise has already begun in earnest...

We’ve already heard tales of snow-related woe from a string of retailers including HMV, Dixons, New Look, Next, Mothercare and Argos, some of whom have even had to issue profit warnings. And today's grim figures rather prove their point: according to the ONS, sales volume at shops selling ‘mainly food’ were down by 3.4%, the worst performance since records began in 1988. Petrol stations were also hit hard, seeing a 10.7% fall in sales, as people left their cars at home during the icy conditions (higher fuel prices probably didn't help, either). Not even an equally unsurprising 5% jump in sales of winter clothes was enough to make up the shortfall.

Christmas is the time when many retailers expect to make a large chunk of their annual sales, so the bad weather couldn’t have come at a worse time. Many had been hoping that shoppers would squeeze in a few last-minute big-ticket purchases before VAT rose from 17.5% to 20% in January. But it wasn’t to be: sales of household goods actually fell, by almost 1%.

It's true that the value of goods sold was actually up by 2%. But if anything, that just shows the impact of inflation, which - as we discovered on Tuesday - jumped to 3.7% in December, getting on for double the Bank of England's target. But while spending is as weak as this, the Bank will be reluctant to hike interest rates to combat it.

One possible theory is that with all these tax hikes and spending cuts on the way, the great British shopper is starting to tighten his/ her belt and saving their pennies. That doesn't bode well for the UK economy, which explains why the pound has taken a pasting this morning.

But there is an alternative explanation: analyst Vicky Redwood of Capital Economics reckons that despite the VAT hike, spending could rebound in January - since 'anecdotal evidence suggests consumers flocked to the post-Christmas sales'. So perhaps we shouldn't panic just yet.

Economy Retail

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