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UK end of year slump revealed by poor sales figures

Published: 20/01/2017 by Comments

UK end of year slump revealed by poor sales figures

Retailers were surprised by less than expected end-of-year figures signalling the effects of the Brexit vote on prices and consequently peoples spending power.

Sales volumes reduced by 1.9% in December – the largest drop since April 2012 and much more sinister than the Reuters poll of economists forecast of a 0.1% drop.

The news is set against a back drop of the overall positive Christmas trading updates from retailers but ultimately signals a December slowdown in debit card spending.

The Office for National Statistics (ONS) revealed sales volumes increases up 4.3% against the previous year, contrasted with a forecast for 7.2% growth.

There is concern over the ability to maintain the level of consumers spending that has given stability to the economy in the period after the EU referendum.

Concerns arise from the significant drop in the pound since the Brexit vote, which has increased import costs. The UK’s central inflation is the highest in two and a half years and if salaries do not match over time people will end up less well off.

Alan Clarke, an economist at Scotiabank, described the end of year month as “disastrous December.”
“We know from the CPI [inflation] data earlier in the week that prices rose more than expected in December and now we also know that sales volumes fell.

“This is likely to be the theme for the rest of the year – higher prices will reduce disposable income and hurt consumer spending growth,” he said.

However the Office for National Statistics took stock of the fact that the final three months of the year, when combined, still saw an overall sales increase of 1.2%. That should encourage hope that consumers are still capable of facilitating a respectable pace of overall economic growth as we enter quarter number four.

In comments regarding the figures, ONS senior statistician Kate Davies said: “Retailers saw a strong end to 2016 with sales in the final quarter up 5.6% on the same period last year, although the amount bought fell between November and December once the effects of Christmas are removed.

“There were some notably strong figures from smaller retailers, in particular butchers, who reported a significant boost in sales in the run up to Christmas.”

The ONS revealed in their report that small businesses saw an estimated 17.4% rise in sales against December 2015, with specialist food stores doing reasonably well.  The biggest contribution to the month-on-month reduction in sales was poorer performances from non-food stores.

The Bank of England has indicated the important role of consumers in keeping the economic growth in recent months.

Its governor said in a comment this week that “households appear to be entirely looking through Brexit-related uncertainties”. Mark Carney also noted that consumer borrowing had increased and suggested that people may have been tapping their savings to keep on spending.

Paul Hollingsworth, UK economist at the consultancy Capital Economics, commented that the retail sales figures reveal something positive on that front.

“The slowdown in spending growth should help to calm fears that low interest rates are driving an unsustainable credit-fuelled consumer boom. And we expect spending growth to lose some more pace over the coming year as inflation picks up and squeezes growth in households’ real incomes,” he said.

“But with interest rates set to remain low and the cost of servicing debt very manageable, as well as strong confidence by past standards, we expect spending growth to slow, rather than grind to a halt.”

Colette Lamb
News article by:
Colette Lamb

A business sector writer with over 15 years of experience working in the marketing, commerce and law sectors' internationally and in the UK. Interests include composing music and other creative communications such as art and dance therapy.

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