Retail sales fell last month as shoppers cut Christmas spending in the face of price rises and the higher cost of living.
Retail sales volumes dropped by 1 per cent, after a fall of 0.5 per cent in November, data from the Office for National Statistics shows. Economists had forecast a 0.5 per cent rise.
Heather Bovill, ONS deputy director for surveys and economic indicators, said feedback suggested “consumers cut back on their Christmas shopping due to affordability concerns”.
Compared with December 2021, sales were down by 5.8 per cent, the biggest fall for that month in records since 1997. In terms of value, spending was down by a month-on-month 1.2 per cent from November.
The fall will raise concerns about economic growth at the end of the year and for the retail sector. Christmas is a key period for retailers.
The decline last month was driven by a 2.1 per cent fall in sales in non-food items as households scaled back their spending as double-digit inflation eroded the value of earnings.
Sales volumes at food shops fell by 0.3 per cent after growing by 1 per cent in November. Some retailers said the growth reflected customers stocking up early for Christmas to spread the cost of their shopping and avoid delays to deliveries from the Royal Mail strike.
Bovill said: “After last month’s boost as shoppers stocked up early, food sales fell back again in December with supermarkets reporting this was due to increased food prices and the rising cost of living.”
Economists had expected a return to growth in retail sales in December following record sales across the fashion, grocery and homeware sectors at the end of the year.
Tesco, Britain’s largest supermarket, reported a 7.9 per cent increase in sales over the festive period, while UK sales at Sainsbury’s grew by 7.2 per cent. Next, Marks & Spencer, WH Smith and Dunelm also recorded higher revenues than expected. The discounters, such as Aldi, Lidl and B&M, benefitted from customers trading down as they continued to tighten purse strings during the cost of living crisis.
Helen Dickinson, chief executive of the British Retail Consortium, said: “Volumes fell for the ninth consecutive month as the cost of living squeeze caused consumers to rein in December spending. The high cost of household bills, particularly for energy, and rising food inflation, made for a difficult Christmas backdrop with falling consumer confidence.
“Nonetheless, increased discounting helped boost gift giving, with stronger sales growth for clothing and furniture,” she said.
Dickinson said many of the cost pressures on retailers and their customers, such as high energy prices, will continue this year but are expected to ease in the second half of the year.
Many economists have predicted that a fall in consumer spending, brought on by the impact of inflation on household budgets, will lead to a recession lasting for most of this year.
Consumer confidence fell back to near-record lows in January after a brief return to growth at the end of last year, according to the latest survey by GfK, the market intelligence company.
Gabriella Dickens, senior UK economist at the Pantheon Macroeconomics consultancy, said: “Heavy snowfall and intensifying strike action in December likely contributed to the further drop in retail sales, but the underlying picture is weak too. The month-to-month fall pushed retail sales volumes 2.5 per cent below their average level in 2019, the largest shortfall since February 2021, when the U.K. economy still was in lockdown.”
She added: “Looking ahead, households likely will have to contend with rising energy prices, higher new mortgage rates and falling employment . . . We expect households’ overall real expenditure in 2023 to be about 1 per cent lower than last year, with retail sales faring just as badly as services expenditure.”