UK Retail Sales Experience Sharp 3.2% Drop in December

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UK retail sales volumes declined by 3.2% in December, marking the steepest drop since the country was under Covid lockdown restrictions. Official figures from the Office for National Statistics (ONS) revealed a significant fall in both goods and food sales in the lead-up to Christmas.

The decline was attributed to consumers completing their shopping earlier in November, taking advantage of Black Friday sales. Non-food product purchases fell by 3.9%, particularly affecting department stores. Food demand also dropped by 3.1%, contributing to the largest monthly fall in retail sales since January 2021.

Factors Impacting Retail Sales:

  • Black Friday sales in November prompted early shopping, impacting December figures.
  • Non-food product purchases fell by 3.9%, with department stores being the most affected.
  • Food demand declined by 3.1%, reflecting fewer large family gatherings and reduced gift purchases.
  • While December’s fall was the most significant since January 2021, the actual volume of goods purchased was the lowest since May 2020 during the first Covid lockdown.

Industry Insights and Analysis:

  • Supermarkets reported strong Christmas sales, benefiting from rising prices over the past year.
  • Fashion chain Next experienced robust sales, while JD Sports issued a profit warning due to weaker-than-expected trading.
  • Specialist wine retailer Majestic reported record sales, driven by rebounding trade with the hospitality sector.
  • Concerns about high food prices and the impact of inflation on consumer spending persist.

Economic Implications and Outlook:

  • The unexpected drop in retail sales raises concerns about a potential mild recession at the end of 2023.
  • Alex Kerr from Capital Economics notes that the cost-of-living crisis and rising interest rates continue to impact real incomes and consumer spending.
  • Inflation, though having fallen from previous highs, edged up to 4% in December, potentially delaying expected interest rate cuts.

Future Predictions:

  • The British Retail Consortium predicts a challenging year for the sector, with household budgets squeezed by higher living costs.
  • Despite expectations for a rate cut, recent inflation figures may postpone a Bank of England decision until June.