Britain’s retailers suffered a surprise end-of-year slump in sales in a sign that rising prices since the Brexit vote are starting to hit people’s spending power.
Sales volumes dropped by 1.9% in December, the retail industry’s crucial Christmas month, according to official figures. That was the biggest drop since April 2012 and far worse than forecasts for a 0.1% dip in a Reuters poll of economists. Compared with a year ago, sales were up 4.3%, below a forecast for 7.2% growth.
Industry experts cautioned against reading too much into a single month’s figures and instead pointed to news of continued growth for the final three months of the year as a whole. Sales from October to December were up by 1.2% on the previous quarter, the Office for National Statistics (ONS) said, describing the performance as a “strong end to 2016”.
But signs that momentum dipped at the end of the year were taken by economists as a flavour of the pressures to come in 2017 as shoppers adjust to rising prices on the back of a weaker pound. The drop in sterling since the referendum has raised import costs and some of that is now being passed on to consumers. The UK’s main inflation rate hit a two and a half year high in December.
Reacting to the retail sales news, Alan Clarke, an economist at Scotiabank, called it a “disastrous December”.
“We know from the CPI [inflation] data earlier in the week that prices rose more than expected in December and now we also know that sales volumes fell.
“This is likely to be the theme for the rest of the year – higher prices will reduce disposable income and hurt consumer spending growth,” he said.
The pound dropped to below $1.23 after the figures, down by 0.4% from the day before, reflecting worries that the squeeze on consumer spending will hit overall economic growth this year.
The official retail figures for December contrasted with the largely upbeat tone of retailers’ Christmas trading updates but echoed signs of a slowdown in spending reports from debit card companies.