Economy & Policy

Retail sales slow as families feel the pinch

Retailers suffered the weakest Christmas shopping growth for five years as higher prices hit family spending.

December’s retail sales rose by 1.4pc by volume compared with the same month of 2016, the slowest growth since 2012.

To get that modest rise in goods, shoppers had to spend an extra 4.4pc, the Office for National Statistics said, underlining the substantial impact of rising prices.

Inflation has started to slow, but price increases of 3pc in the 12 months to December remain well above pay growth which came in at just 2.5pc in the year to October. Black Friday, a period of discounting in November, dragged some sales forward a month, flattering November’s figures but worsening December’s.

However, sales in the final quarter of the year were up just one percent on the same period of 2016.

Ian Gilmore of Barclays said: “The truth is that these kind of comparisons are increasingly dangerous for retail analysts trying to untangle performance over the Christmas period.”

He added that trading patterns were shifting as a result of variables such as the “evolving influence of Black Friday”, the timing of wider price cuts and the importance of online commerce, which have disrupted traditional trading patterns.

While Mr Gilmore said that there had been a softening of three-month growth, he noted that “the fact that we’re still in positive territory should give some comfort to retailers continuing to battle difficult conditions”.

Food sales also fell, with volumes down 1.1pc on the month and 0.6pc on the year, indicating a fundamental weakening in shopper confidence.

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Economists see little chance of a rapid bounceback as inflation will fall gradually.

James Smith at ING said: “We see few catalysts for a recovery in spending over the next few months. Whilst prices in general have largely adjusted to the post-Brexit weakening in the pound, food and fuel costs are continuing to rise.”

Mr Smith said that, while “signs of skills shortages in certain sectors had prompted the Bank of England to forecast a sharp acceleration in wage growth, there is also a risk that some firms remain cautious as economic demand and other input cost pressures continue to bite”.

He said that as a result, real disposable incomes were likely to remain “at best flat over the next few months”.

Such an outlook could also reduce the chance of another interest rate hike from the Bank of England.

Markets have cut their probability of an increase in the base rate in May from more than 40pc a week ago to 34pc now.


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