British retail sales drop unexpectedly in December

British retail sales dropped unexpectedly in December, as consumers dealt with rising inflation during the crucial Christmas shopping period.

The volume of retail sales in Great Britain fell by 1 per cent between November and December, according to figures published by the Office for National Statistics on Friday.

The reading was well below the 0.5 per cent rise forecast in a Reuters poll of economists.

Retail sales fell despite government payments to help households with the rising cost of living, delivered in mid to late November, which were expected to have “given an extra boost to spending in the lead-up to Christmas”, according to Paul Dales, chief UK economist at Capital Economics.

The figure is the second monthly decline in retail sales volumes, following a 0.5 per cent drop in November, when Black Friday failed to produce a significant bump in sales.

Food sales volumes fell by 0.3 per cent in December, down from a 1 per cent rise in the previous month. Heather Bovill, ONS deputy director for surveys and economic indicators, said: “After last month’s boost as shoppers stocked up early, food sales fell back again in December.”

Non-food sales volumes fell by 2.1 per cent over the month. Within the category, clothing stores sales volumes rose by 1 per cent, while household goods stores, such as furniture stores, increased by 1.5 per cent over the month.

But the figure was dragged down by a large drop in the “other” non-food subcategory, which went down by 6.2 per cent because of falls in common gift categories such as toys, cosmetics, jewellery and sports equipment, according to the ONS.

“December’s fall in sales suggests consumers didn’t see Christmas or the World Cup as strong enough incentives to loosen the purse strings,” said Aled Patchett, head of retail and consumer goods at Lloyds Bank.

Online shopping fell to 25.4 per cent, from 25.9 per cent in November, with some online retailers reporting that they were set back by Royal Mail strikes last month.

Latest data from the ONS public opinion survey, covering the period between December 21 and January 8, showed that 65 per cent of adults were spending less on non-essentials as their living costs increased.

The ONS findings are in line with separate data by research company GfK, released earlier on Friday, which showed that UK consumer confidence remained below minus 40 for the ninth month in a row in January, marking the longest period of pessimism in nearly 50 years.

“With a renewed fall in consumers’ confidence in January”, weak retail sales were “very likely to continue as the broader economy slips into recession in 2023”, said Olivia Cross, assistant economist at Capital Economics.

Nevertheless, the ONS reported that the value of retail sales was up 3.8 per cent compared with December 2021, despite their volume being down 5.8 per cent on the same period.

As prices surge to near-record highs, particularly following Russia’s invasion of Ukraine, retailers’ turnover rose but people could buy less with their money.

Consumer price inflation eased slightly to 10.5 per cent last month, after hitting a 41-year high of 11.1 per cent in October.

“With the UK forecast to enter recession this year, combined with energy bills remaining sky-high and savings starting to run low for many households, retailers face a challenging year,” said Phil Monkhouse, head of sales at financial services firm Ebury.