Retail sales plummeted by much more than expected in the crucial festive shopping month of December, dropping at the fastest pace since January 2021 when trading was hit by coronavirus-related restrictions, official figures reveal.
The Office for National Statistics said yesterday that retail sales volumes in Great Britain tumbled by 3.2% month-on-month in December on a seasonally adjusted basis.
Economists polled by Reuters had overall projected a 0.5% fall. And the actual decline was worse than any individual forecast in the poll.
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The December fall was broadly based, with sales in the food and non-food categories both tumbling. Online sales dropped sharply, and the clothing and department store categories also saw sharp declines.
Economists noted that the December retail sales figures increase the chances that the UK economy fell into recession in the fourth quarter of last year. UK gross domestic product declined by 0.1% in the third quarter, and a further fall in the final three months of last year would put the country in technical recession.
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Comparing the fourth quarter of last year with the three months to September, retail sales volumes in Great Britain were down by 0.9%.
Non-food store sales volumes fell by 3.9% last month, following a 2.7% increase in November when earlier Black Friday sales, and wider discounting, increased sales, the ONS noted.
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Food store sales volumes fell by 3.1% in December, following an increase of 1.1% the previous month.
In the non-store category, which predominantly covers online retailers, sales volumes fell by 2.1% in December. This followed a decline of 1.1% in November.
Danni Hewson, head of financial analysis at stockbroker AJ Bell, said: “Retailer after retailer has been warning that this Christmas has been a tough one and these figures lay bare just how hard things have been. Not since January 2021, when people’s ability to shop was curtailed by Covid lockdowns, has such a drop-off in spend been recorded, and remember that was post-Christmas rather than at the sharp end of the crucial ‘golden quarter’.
“People shopped early, spreading the cost of gift-buying and making the most of the big discounts on offer during Black Friday sales.”
She added: “Any hopes that as the big day drew nearer shoppers would rush to stores to make sure Santa’s sleigh was suitably stocked were quickly dashed as consumers battered by months and months of budgetary pressures decided to simply spend less on stuff. Social media was full of tips on how to have those tricky conversations with friends and family about setting budgets or agreeing to a secret Santa in order to keep costs down."
James Smith, developed markets economist at Dutch bank ING, said: “The UK retail sector seems to have had a torrid end to 2023. Retail sales fell by 3.2% on the month, which represents a huge fall - even by the volatile standards of this data. So huge, in fact, that we’re a little bit sceptical.
“Wet weather in December will inevitably attract some of the blame, while it does appear that the trend of pulling spending forward to November from December to benefit from Black Friday is continuing. It’s hard to say, but this may be playing havoc with some of the seasonal adjustment processes. Still, the decline in retail sales does tally with other reports, for example from the British Retail Consortium, that the Christmas trading period fell flat. And the fall in spending was broad-based.”
He added: “In reality, the consumer backdrop is starting to improve and that’s hard to square with the scale of December’s decline. We suspect much of the loss will be recovered in January [and] February…
"The fall in sales will bolster the chances of another small decline in fourth quarter UK GDP, and that would mean two quarters of negative growth - a technical recession, though in name only. Indeed, we’ve recently written how we think the UK economic outlook is starting to look brighter.”
Ms Hewson said: “The big question is, ‘Did people spend their money elsewhere or not [at] all?’. The answer to that is likely to be the deciding factor in whether or not the UK has fallen into a technical recession.”
Martin Beck, chief economic adviser to the EY ITEM Club think-tank, said: “In volume terms, December’s fall was more than twice as big as the previous month’s rise, which seems unlikely, even allowing for Black Friday distortions. The odds of an upward revision seem high. But as things stand, the risk that GDP also contracted in Q4, leaving the economy in a technical recession at the end of 2023, has grown.”
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