LONDON: A spending spree by British shoppers in the week before Christmas failed to prevent sales in December from falling short of the previous year’s level, while shop prices are expected to surge in 2017, surveys showed on Friday.
Robust growth in consumer spending has been one of the main factors sustaining Britain’s economy since last June’s vote to leave the EU. But many retailers fear a squeeze on spending as inflation begins to erode real earnings growth in 2017.
Monthly surveys from accountancy firm BDO and the European Commission (EC) showed retail sales slowed in December, with the latter showing a record jump in retailers’ price expectations.
Like-for-like retail sales in December fell 0.1 percent year-on-year, according to BDO. However, online sales in the month rose 19 percent year on year, further evidence of a shift in shopping habits.
“With such a weak base for December 2015 (when sales fell 5.3 percent) any further decline can only be seen as a poor result for retailers,” said Sophie Michael, head of retail and wholesale at BDO.
“Coming at a critical juncture, this fourth negative December in succession highlights the magnitude of the challenge that lies ahead for 2017, when consumers will more keenly feel the bite of inflation and the weaker pound,” she added.
The pound is still down around 12 percent on a trade-weighted basis since the vote for Brexit on June 23. Bank of England chief economist Andy Haldane said on Thursday the effect of sterling’s slump was starting to trickle into higher shop prices.
The EC’s gauge of UK retailers’ price expectations for the coming months more than doubled between November and December, a record increase to levels nearing the all-time highs reached in 2011, the last time consumer price inflation topped 5 percent. The mixture of burgeoning inflation pressure and strong consumer spending leaves the Bank of England with a balancing act between trying to keep prices under control while supporting the economy.
BDO said that in the week leading up to Christmas Day sales increased 11.7 percent year on year — the largest weekly growth figure for the whole of 2016. However, the outcome partly reflected Christmas Day falling on a Sunday.
On Wednesday clothing retailer Next, the first major British retailer to give an update on Christmas trading, cut its profit forecast for the current financial year and warned of a further decline in 2017-18.
The British Retail Consortium is scheduled to publish December sales data on Jan. 10. Official data for the month is published on Jan. 20.
Next week will also see a raft of Christmas trading updates, including from supermarkets Morrisons, Sainsbury’s and Tesco and from Marks & Spencer, Debenhams and ASOS.
UK retail sales edge lower in December, price pressures spiral
UK retail sales edge lower in December, price pressures spiral
