UK retail sales fell in the “golden quarter” of Christmas trading, the latest statistics showed today in a further sign of the challenges facing the British high street.
In the three months to December 2019, the amount spent and the quantity bought in the retail industry fell 0.9 per cent and one per cent respectively, when compared with the previous three months.
The hugely underwhelming figures sent the value of sterling down 0.32 per cent to $1.3031.
The 0.6 per cent decline in how much shoppers bought during the quarter is the largest drop in more than two years, the Office for National Statistics (ONS) revealed.
Economists had expected a rise of up to 0.5 per cent.
Meanwhile, the amount spent by UK shoppers in December also fell 0.3 per cent, according to the ONS.
In comparison, in the same month of 2018, the amount spent grew 1.5 per cent and the quantity bought increased 0.9 per cent.
In monthly terms, retail sales have seen the longest period of no growth since comparable records began in 1996.
UK retail sales woes increase chance of rate cut
Thomas Pugh, UK economist at Capital Economics, said the drop could convince the Bank of England to cut interest rates later this month.
The bank’s Monetary Policy Committee has been mulling cutting rates from 0.75 per cent to 0.5 per cent at a meeting later this month.
“December’s outright fall in retail sales, despite a potential boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the [Bank of England’s] Monetary Policy Committee (MPC) yet closer still to cutting rates at the end of the month,” he said.
“Not a very merry Christmas for retailers”, Pugh added. “But the election and the removal of some uncertainty could represent a turning point for the economy.
“Indeed, there are signs that sentiment has already turned up. As a result, January might not be quite as bad.”
Ranko Berich, Head of Market Analysis at Monex Europe, said: “The MPC is now in a dilemma. Cutting rates now runs the risk of an investment boom in the first quarter forcing a quick retreat. But should the much hoped for investment pickup not materialise, a 25 basis point cut may prove too little, too late, and the MPC will find itself uncomfortably close to the negative interest rate vortex that has engulfed the Eurozone and Japan.
“With the Bank Rate at 0.75 per cent the MPC does not have much room before rates hit zero, so there is a powerful incentive to cut rates earlier rather than later. This type of reasoning saw several global central banks take out “insurance” rate cuts over the past year.
“The BoE has been burned with this type of move before, in 2016 when survey data dived in the wake of the EU referendum, but then quickly recovered, making the BoE’s rate cut look somewhat unnecessary. But the current slowdown in the UK economy has been confirmed by a matching slowdown in hard data, making a cut far more likely.”
Food stores suffered a 1.3 per cent drop in the amount bought in December, while clothing saw a drop of two per cent.
Department stores also continued to struggle, reporting a fall in the quantity bought of 1.8 per cent during the month.
‘Hugely disappointing’ figures
Richard Lim, chief executive at research firm Retail Economics, said: “These numbers paint a pretty bleak picture for Christmas trading, especially for the food sector. It’s becoming increasingly clear that shoppers are happily shying away from the main grocers in favour of the discounters as they prioritise value over range.”
“A real jolt for the economy,” Howard Archer, chief economic advisor to EY Item Club, added. “Much weaker than expected and hugely disappointing news.”
Karen Johnson, head of retail and wholesale at Barclays Corporate Banking, saw some positive signs amongst the negative UK retail sales data.
“There are a number of non-market factors that mean the year ahead is unlikely to be all doom and gloom for UK business,” she said.
“As well as some settling in political stability following the General Election, the growing influence of sustainability on consumers seems to be heralding in a new set of opportunities for UK retailers.
“The growth of the ‘conscientious consumer’ means that a greener approach will be key to securing market share in 2020, and, whilst this may pose a challenge to established business practices, it also provides a clear opportunity to stand out in an increasingly competitive environment.”
Lisa Hooker, consumer markets leader at PwC, said the General Election, Brexit and wet weather had provided the ingredients for an underwhelming Christmas for retailers.
“December trading was always going to be a challenge for retailers, given the late timing and continued interest in Black Friday bringing forward sales to November,” she added.
Hope for 2020?
Despite the gloomy picture painted by today’s ONS retail sales figures, the industry remains hopeful that 2020 will prove to be a more prosperous year for the high street.
“Retailers are now placing their hopes on the fact that the political paralysis of the last few months is over, as the UK now has a parliament that can make decisions – hopefully giving consumers the confidence to return the high street in significant numbers,” Hilary Ross, head of retail, food and hospitality at DWF, said.
“The next three months will be crucial to see if the ‘Boris Bounce’ can deliver real results.”
Andrew Carlisle, managing director at Accenture, said “it is easy to lose sight of the bigger picture”.
“While these figures won’t dispel concerns around the challenging UK retail climate, the picture is not all doom and gloom. Consumer confidence rose to its highest since July last month, showing there could be better times ahead in 2020.
“Retailers will be hoping that an economic bounce and regulatory relief will see an upturn in fortunes.”
High streets minister Jake Berry said: “We absolutely recognise that rapidly changing shopping habits are a challenge for high streets across the country.
“The Government is responding by slashing business rates for small retailers and investing £3.6 billion to help our town centres adapt, evolve and thrive.”