Retail Sales Fall To 13-year Low On Festive Slump

The extent of the high streets troubles was revealed today with official figures showing that general retailers had suffered their worst performance for 13 years.

The figures from the Office for National Statistics (ONS) will put increasing pressure on the Bank of England to cut interest rates, as the signs of faltering consumer spending become overwhelming.

British retail sales fell unexpectedly in December, driven by a dire performance from non-specialised stores, including department stores. Sales volume for non-specialised stores dropped by 4.3 per cent, the largest decrease for this sector since February 1994.

Total sales volume decreased by 0.4 per cent between November and December, while sales volumes for predominantly non-food stores fell by 0.9 per cent.

Only food stores showed any improvement in December, with sales volumes up by just 0.1 per cent.

Howard Archer, chief economist at Global Insight, said: Retail sales disappointingly fell 0.4 per cent in December, despite significant discounting. However, non-store retailing was more resilient, indicating that internet sales continued to gain market share and adding to the high streets woes.

The fall in retail sales growth in December indicates that consumer spending is now increasingly faltering in the face of mounting headwinds, Mr Archer said.

Global Insight predicts that the Bank of England will cut interest rates by a further 25 basis points to 5.25 per cent in February.

Economists forecast that consumer spending will soften significantly in 2008 as consumers are increasingly pressurised by muted real disposable income growth, tighter lending practices, increased debt levels, a markedly softer housing market and the lagged impact of the rise in interest rates between August 2006 and July 2007.

People will also have less purchasing power as higher energy bills and food prices start to take their toll. Homeowners who have to re-fix their mortgages at significantly higher levels will also contribute to a slowdown in consumer spending.

Global Insight is predicting that that real consumer spending growth will be limited to 1.8 per cent in 2008, down from an estimated 3.2 per cent in 2007.

The ONS report follows other gloomy data earlier this month from the British Retail Consortium. It said that like-for-like UK sales rose by a worse-than-expected 0.3%, the weakest growth rate for three years.

Growth in sales volume for the three months from October to December also declined compared with previous months. Sales rose by just 0.4 per cent compared with 1 per cent growth in the three months to November.

Three-monthly growth in sales volume was 0.3 per cent for predominantly food stores, while no growth was reported for predominantly non-food stores. Three-monthly growth was reported in each sector of retailing except for non-specialised stores, where sales fell by 1.6 per cent, the largest fall for this sector since July 2005.

The growth in internet sales could be seen in figures for non-store retailing and repair, which rose by 4.4 per cent, the largest growth for this sector since October 2006.

Total sales volume in the three months to December was 3.6 per cent higher than the same period a year ago. Sales volume for predominantly non-food stores rose by 4.4 per cent. Sales volume for textile, clothing and footwear stores was 1.0 per cent higher than the same period a year ago, the smallest growth for this sector since February 1999. Sales volume for predominantly food stores rose by 0.9 per cent.

The average weekly value of sales in December was £6.8 billion, 1.4 per cent higher than in December 2006.

Sales by predominantly food stores rose by 2.4 per cent over the year, compared with no growth for predominantly non-food stores and 10 per cent growth for non-store retailing and repair.

Sales by household goods stores fell by 2.1 per cent, the largest fall for this sector since March 2006.

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