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Dismal retail sales suggest possible recession for Britain

by SuperiorInvest

Shoppers walk past shops on Regent Street on the last working day before Christmas in London on December 22, 2023.

Henry Nicholls | afp | fake images

UK retail sales fell significantly more than expected in December, in a sign that the economy may have entered a shallow recession in the second half of 2023.

The Office for National Statistics said sales volumes fell 3.2% during the key trading month, after a 1.4% rise in November. Economists polled by Reuters expected a drop of just 0.5%.

December marked the biggest monthly drop since January 2021, when strict pandemic lockdown measures curbed demand. The ONS said people appeared to have done their Christmas shopping earlier than in previous years.

Volumes were 0.9% lower in the three months to December 2023, compared to the previous quarter.

It comes after the UK’s gross domestic product for the third quarter was revised down to a 0.1% contraction, from a previous reading of no growth.

“Today’s release would subtract about 0.15 percentage points from real GDP growth in December, raising the chances that the economy will have ended 2023 in the mildest of mild recessions,” said Alex Kerr, assistant economist at Capital Economics.

Looking ahead to next year, Kerr said the impact of higher interest rates on mortgage holders may lead to a further “modest decline” in real consumer spending in the first quarter. He added that interest rate cuts expected from June and a drop in inflation would support a recovery in the second half of the year.

Trade body British Retail Consortium said the figures “capped a difficult year for retailers” and showed Black Friday sales hit Christmas spending.

December’s decline was most pronounced in non-food retail trade, which was down 3.9% after posting 2.7% growth in November. Sales at grocery stores decreased 3.1%, after an increase of 1.1% the previous month.

Online sales showed slightly greater resilience, falling 1.7% in December, causing the share of online sales to physical sales to increase from 26.6% to 27.1%.

A combination of bad weather in December and Black Friday events likely contributed to the “torrid end” to the retail year, James Smith, developed markets economist at ING, said in a note.

He added: “In reality, the consumption context is starting to improve and that is difficult to square with the scale of the decline in December. We suspect that much of the loss will be recovered in January/February.”

Strong prospects for real wage growth, declining inflation and slightly improved consumer confidence will support the recovery, he said.

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