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UK retail sales fall by more than expected in December as higher inflation hits consumer spending

Sales volumes dropped 1.5 per cent last month, worse than 0.8 per cent City of London analysts had pencilled in

Ben Chu
Economics Editor
Friday 19 January 2018 10:42 GMT
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The numbers have offset the optimistic peak seen during November due to Black Friday
The numbers have offset the optimistic peak seen during November due to Black Friday

Retail sales fell by more than expected in December, confirming a weak Christmas trading period for shops and showing that UK consumers are still reining in their spending in the face of higher inflation.

The Office for National Statistics (ONS) reported that sales volumes were down 1.5 per cent in the month, worse than the 0.8 per cent City of London analysts had pencilled in.

The drop cancelled out the 1.1 per cent gain seen in November, which had been powered by Black Friday discounting.

The annual growth rate of sales volumes fell to 1.4 per cent in December, well below the 3 per cent City analysts had expected.

On a quarterly basis, the growth in sales volumes was 0.4 per cent, the weakest rate seen since the beginning of 2017, when volumes fell by 1.2 per cent.

“The longer-term picture is one of slowing growth, with increased prices squeezing people’s spending,” said Rhian Murphy of the ONS.

Businesses have announced they may have to close due to such poor figures Office for National Statistics

The inflation rate actually declined slightly to 3 per cent in December, the ONS reported earlier this week, although this remains well ahead of average annual wage growth.

A number of retailers have already reported poor Christmas trading figures.

The UK’s second largest department store chain, Debenhams, said earlier this month that sales over Christmas had been “below expectations”.

On Friday Carpetright issued a profit warning, citing a “sharp deterioration” in UK trade.

“The big question now is whether this is the start of a worrying trend for the economy, or whether falling inflation and rising wages will come to the rescue,” said Ben Brettell, an economist at Hargreaves Lansdown.

“The answer is that it’s too early to say. The monthly data is volatile, so it’s hard to draw firm conclusions, but the underlying trend is definitely one of slowing growth.”

Retail sales account for around 20 per cent of UK GDP and have been a key support for overall growth since the Brexit vote.

The ONS said that sales volumes at non-food stores were down 0.6 per cent in the month, while food store sales and non-store retailing both fell 0.4 per cent.

Reflecting the boom in digital purchasing, internet sales as a proportion of all retailing were 18 per cent, down from the record 19.8 per cent in November and Black Friday, but a new record high for December.

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