- By Dearbil Jordan
- Business correspondent, BBC News
Image source, Getty Images
Retail sales fell 3.2% in December in the biggest decline since the UK was in coronavirus lockdown.
Official figures revealed a sharp drop in demand for goods, but food sales also fell in the run-up to Christmas.
The Office for National Statistics (ONS) said people appeared to have been shopping earlier in November, taking advantage of Black Friday sales.
This means that retail sales fell at the fastest rate since January 2021.
The Office for National Statistics said The amount of non-food products people bought in December fell by 3.9%. This compares to a 2.7% increase in November.
Demand for food at the end of the year also decreased by 3.1%. In November, food sales rose 1.1%.
Heather Bovell, deputy director of economic surveys and indicators at the Office for National Statistics, said the decline in retail sales in December was “the largest overall monthly decline since January 2021, when the re-imposition of pandemic restrictions led to a sharp decline in sales”.
While she said the November discount had encouraged people to do early Christmas shopping, there was also evidence from department stores, clothing retailers and those selling household goods that consumers spent less on gifts.
While the decline was the largest since January 2021, when more Covid restrictions were imposed, the actual volume of goods people bought in December was the lowest since May 2020 when the country was in its first Covid lockdown.
But one retailer bucking the trend was specialist wine store Majestic, which achieved record sales in the run-up to Christmas as figures rose 8% – thanks to a rebound in its trade with the hospitality sector.
However, chairman and chief executive John Colley told BBC Radio 4’s Today program that consumers overall were still suffering from the high food prices seen over the past 12 months.
“I think we are still suffering from the effects of inflation…and I think consumers are still feeling the impact and I don’t think it’s over, yet.”
Worse-than-expected retail sales also raise the risk that the UK will end 2023 in the “most mild of a moderate recession,” according to Alex Kerr, assistant economist at Capital Economics.
A recession is usually defined as two three-month periods – or quarters – in a row of shrinking economic output.
The British economy contracted by 0.1% between July and September. It contracted again in October but rebounded again in November.
Even taking into account the impact of Black Friday sales on shopping, December’s decline was “much larger” than expected, Kerr said.
“This may be partly due to consumers postponing their Christmas purchases to November,” he said. “But it was also because the effects of the cost-of-living crisis and sharp rises in interest rates were still affecting real income and consumer spending.”
Inflation, which measures the rate at which prices rise, has fallen sharply since its highest levels reached in October 2022.
However, the latest inflation figures showed that the rate rose to 4% in December against widespread expectations that it would continue to fall.
Economists and financial markets had expected the Bank of England to cut interest rates this year, perhaps in the spring.
However, recent inflation figures suggest that the cut may not happen before June. Interest rates are currently at 5.25%.