Bloomberg News

U.K. Retail Sales Unexpectedly Decline Around Christmas

January 18, 2013

U.K. Retail Sales Unexpectedly Fall as Consumer Gloom Persists

Excluding December 2010, when cold weather curbed consumer spending, the annual increase in retail sales last month was the weakest for a December since 1998, the statistics office said. Photographer: Simon Dawson/Bloomberg

U.K. retail sales unexpectedly fell in December as consumer uncertainty extended into the key Christmas trading season for British stores.

Sales including fuel declined 0.1 percent from November, when they stagnated, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg News survey was for a 0.2 percent increase. Household goods fell the most in almost three years. From a year earlier, total sales rose 0.3 percent.

The data underscores the weakness of Britain’s high streets in a week that saw HMV Group Plc (HMV), the U.K.’s biggest seller of CDs and DVDs, and movie rental chain Blockbuster Entertainment Ltd. enter administration. GfK NOP’s measure of consumer confidence fell in December as the economy struggled to recover from a recession. Some of the nation’s largest utilities have raised electricity and gas prices, squeezing households.

“The festive period was fairly lackluster for the high street,” said Vicky Redwood, an economist at Capital Economics in London. “With consumers’ real pay still falling, demand is unlikely to improve in the foreseeable future.”

Excluding December 2010, when cold weather curbed consumer spending, the annual increase in sales last month was the weakest for a December since 1998, the statistics office said.

The pound extended its decline against the dollar after the report. It was trading at $1.5936 as of 11:40 a.m. in London, down 0.4 percent from yesterday.

McCafferty’s View

Bank of England policy maker Ian McCafferty said today that there “are questions on whether sterling is now at a competitive level in terms of allowing that fundamental rebalancing” needed in the economy.

McCafferty also said that the central bank must keep an open mind on whether to use “unorthodox” tools to help the economy, and that the central bank’s mandate is currently “relatively flexible” and nominal targeting of gross domestic product may only be of use as a temporary measure.

Sales of household goods dropped 3 percent in December from November, the most since January 2010. Food sales fell 0.3 percent, while clothes and shoes rose 0.7 percent. Excluding fuel, retail sales dropped 0.3 percent in December from the previous month and were up 1.1 percent from a year earlier.

‘Underwhelming’ Shopping

The British Retail Consortium has described the holiday shopping period as “underwhelming.” Marks & Spencer Group Plc (MKS), the U.K.’s largest clothing retailer, said last week that same- store general merchandise revenue fell 3.8 percent in the 13 weeks ended Dec. 29, more than analysts had forecast.

Today’s report also showed the continued growth of Internet shopping that is taking its toll on high street stores. Online accounted for 10.6 percent of all retail sales in December compared with 9.4 percent a year earlier, according to the ONS. Britons spent an average of 830 million pounds ($1.3 billion) a week online in December, up from 719 million pounds in December 2011.

Asos Plc (ASC), the U.K.’s largest online-only fashion retailer, said yesterday that Christmas sales growth accelerated to 41 percent compared with fiscal first-quarter growth of 30 percent.

In the fourth quarter, the volume of retail sales fell 0.6 percent compared with the previous three months, the biggest quarterly drop since August 2011. The National Institute of Economic and Social Research estimates that the economy shrank 0.3 percent in the three months through December.

Bond Purchases

The Bank of England left its target for bond purchases at 375 billion pounds last week. It will have new economic and inflation forecasts at its next policy meeting in February to guide its decision.

U.K. consumers may remain under pressure this year. Inflation held at 2.7 percent last month, above the Bank of England’s 2 percent target and outpacing wage growth. Barclays Plc said in a note this week that it expects consumers “to face a continued squeeze on the back of weak wage growth, high inflation and fiscal austerity.”

The retail report today showed the annual retail sales deflator, a measure of changes in shop prices, rose to 0.6 percent in December from 0.4 percent in November. The deflator on food stayed at 3 percent, the most since May.

Elsewhere, China’s economic growth accelerated for the first time in two years as government efforts to revive demand drove a rebound in industrial output, retail sales and the housing market. Gross domestic product rose 7.9 percent in the fourth quarter from a year earlier, the National Bureau of Statistics said in Beijing.

U.S. consumer confidence probably rose this month after falling to a five-month low in December, according to a Bloomberg survey before the release of the Thomson Reuters/University of Michigan consumer sentiment index today.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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