WEAK UK retail sales figures for January have fuelled fears of economic slowdown, amid worries that consumers are struggling with price rises resulting in large part from sterling’s tumble since the Brexit vote.
Figures published by the Office for National Statistics yesterday showed UK retail sales volumes dropped by 0.3 per cent month-on-month on a seasonally-adjusted basis in January, defying City expectations of a 0.9 per cent rise.
And the month-on-month fall in retail sales volumes in December was revised from 1.9 per cent to an even steeper 2.1 per cent.
Comparing the November to January period with the preceding three months, UK retail sales volumes were down by 0.4 per cent. This was the weakest three-month-on-three-month performance since November 2013.
The latest retail sales deflator signalled that prices in January were up by 1.9 per cent on a year earlier. This is the greatest year-on-year rise since July 2013.
The deflator for December had pointed to a 0.9 per cent year-on-year rise in prices in that month.
Food sales were weak in January, showing a 0.5 per cent month-on-month fall in volume terms in January. They were down 0.2 per cent on January last year.
Non-food sales volumes rose one per cent month-on-month in January. Sales volumes in the textiles, clothing and footwear category were up by 1.9 per cent.
However, there was a 0.6 per cent month-on-month fall in the household goods category in January.
Retail sales volumes in January were up by 1.5 per cent on the same month of last year. This was a sharp deceleration from year-on-year sales volume growth of 4.1 per cent in December.
Howard Archer, chief UK economist at IHS Markit, said: “January’s further drop in retail sales, after a marked dip in December, suggests that consumers could now be starting to seriously rein in their spending as their spending power is increasingly squeezed.”
Observing that the “hit to consumers from rising inflation” was evident in the retail price deflator, he added: “It also looks highly likely that some retail sales were pulled forward to the latter months of 2016 as consumers sought to beat expected rising prices. Suspicion that consumers may now starting to be more cautious has also been fanned by the Bank of England reporting that they borrowed at a much-reduced rate in December.”
Figures this week from the Office for National Statistics (ONS) showed annual earnings growth for employees in Great Britain, in nominal terms, slowed to 2.6 per cent in the three months to December.
In real terms, adjusting for inflation, annual earnings growth over this three-month period slowed to 1.4 per cent, its weakest pace in nearly two years.
Economists have highlighted the likelihood that pay could soon start to fall again in real terms, as inflation continues to rise and companies tighten their belts.
Annual UK consumer prices index inflation rose from 1.6 per cent in December to 1.8 per cent in January, official figures showed on Tuesday. Economists expect annual CPI inflation, which was at only 0.3 per cent last May ahead of the Brexit vote, to surge well above the Bank of England’s two per cent target this year.
James Smith, economist at Dutch bank ING, highlighted his view this week that annual inflation would rise above three per cent this year.
Ruth Gregory, UK economist at Capital Economics, said: “January’s surprise fall in the official measure of retail sales volumes has brought the recent run of resilient economic news to an abrupt end, and suggests that the hit to consumer spending growth from higher inflation is starting to materialise.”
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