Fears for economy after sharper dip in Christmas retail sales

Mild weather and extended discounts blamed for worse than expected 1% decline in sales values from previous year

Spending in UK shops dropped last month, as mild weather and deep discounting dented takings for retailers over the key Christmas period. Official figures show that sales values fell at the fastest pace for more than six years, down 1% in December compared with the same time in 2014.

Mixed reports from big retailers since Christmas had pointed to weakness in UK retail sales, but the decline was sharper than City economists had forecast, contributing to fears of a slowdown in the wider economy at the end of 2015.

In volume terms, sales fell 1% between November and December – a much greater drop than the 0.3% forecast by economists in a Reuters poll.

The Office for National Statistics (ONS) said retailers appeared to have offered discounts for longer than during previous Christmas periods, with department stores moving from a one-day Black Friday sale in late November to week-long events encompassing Cyber Monday.

“Promotions during the 2015 Christmas period were more spread out compared with 2014, with retailers offering discounts over a longer period of time rather than a one-day event. Clothing and footwear stores struggled in December due to the milder weather,” said Melanie Richard, head of retail sales at the ONS.

Compared with a year earlier, sales volumes were up 2.6% in December – well below the 4.3% forecast. The figures follow patchy reports from big retailers on their all-important Christmas season. Clothes retailers said the warmer weather hurt sales and disappointing sales were reported by Marks & Spencer and Next. But the beleaguered supermarkets fared better than expected.

The official retail figures will add to concerns that the UK economy struggled in the second half of 2015, mirroring a slowdown in the global economy that has panicked financial markets.

The first glimpse of how the UK economy fared in the final months of 2015 will come next week with the release of fourth-quarter GDP figures. Economists had expected the economy to have expanded 0.5% after growth of 0.4% during the third quarter, according to a Reuters poll carried out before the retail sales figures were released.

But given the reliance of the UK economy on consumer spending, the disappointing retail figures may mean GDP growth is lower than expected, economists said.

“The weaker than expected December retail sales data is the final prod that causes us to trim our estimate of GDP growth in the fourth quarter of 2015 to 0.4% quarter-on-quarter from the 0.5% that we had previously anticipated,” said Howard Archer, chief UK economist at consultancy IHS Global Insight.

“The disappointing December retail sales data follows on from recent news of falling industrial production and construction output in November, and an ongoing weak net trade performance.”

Contributor

Katie Allen

The GuardianTramp

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