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Retail sales fall in December

Retail sales volumes fell by 0.8% in December. This meant there was no change in retail sales compared to December 2009 and this was the worst December figure on record.

Food stores saw a fall of 3.4% on an annual basis, which is the lowest figure since records began in 1988. Non-food stores performed better, with an annual rise of 3.1%. The Office for National Statistics put the poor figures down to the amount of snow which disrupted the country in December. In fact, it was officially the coldest month in 100 years.

The value of retail sales rose by 2% in December, but given that the CPI inflation figure was 3.7% in that month, it is possible that consumers were also put off by increased prices. The recent trend in retails sales volumes can be seen below.

Volume of retail sales, all retailers. Source: ONS

It was estimated that online and mail order sales rose by 5.4% in December, which may partly have been a response to people deciding to shop at home rather than brave the weather conditions.

How serious is the retail sales picture for the economy as a whole? The figures are doubtless distorted by the fact that VAT was raised from 17.5% to 20% from the beginning of January, and it does appear that shoppers were spending heavily in the post-Christmas sales. But there is evidence that sales have now fallen back again, with John Lewis sales being flat in real terms in the week to 15th January, once the VAT increase is factored out.

We can expect consumers to moderate their expenditure in coming months as they wait to see what, if any, wage increases might be in the pipeline, and even how safe their jobs are.

Already analysts are calling for the Bank of England to continue to resist any increase in interest rates. For example, David Kern, chief economist of The British Chambers of Commerce, said: “The pressures facing businesses and consumers will intensify and with prices rising faster than wages disposable incomes will be squeezed further. In this instance it would be wrong to raise interest rates until the initial impact of the austerity package is absorbed.”

The point about ‘pressures facing businesses’ has been illustrated by the latest figures from Begbies Traynor, the insolvency specialist. They have reported that nearly 148,000 companies experienced significant or critical financial problems in the last quarter of 2010, which was a 4% increase on the same period a year earlier, and no less than 20% up on the third quarter of last year.

We will probably see the impact of restrained consumer spending when the GDP figures for the last quarter of 2010 are published tomorrow.

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Posted in Retailing

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