UK retail sales jump in December but growth to slow in new year

UK retail sales grew more than expected in the year to December, with volumes rising at their fastest pace since September last year, according to the latest survey from the Confederation of British Industry.

However, the CBI also warned on Tuesday that growth is expected to slow somewhat in the new year, with pressure on retail activity likely to increase in 2017 on the back of sterling weakness.

The distributive trades survey’s retail sales balance rose to +35 from +26% in November, beating consensus expectations for +20%.

Meanwhile, 26% of retailers said the volume of sales was above the average for this time of year, with 5% saying it was below average, giving a balance of +21%.

Most sub-sectors saw healthy growth in sales volumes, with strong performances in clothing, hardware and DIY, while internet sales continued to grow robustly, with the survey balance at its highest since November 2014.

CBI principal economist Ben Jones said: “It’s encouraging to see retailers reporting another month of healthy sales growth leading up to the festive season, which rounds off a fairly solid quarter.

“While we still expect to see decent growth in the near term, the pressures on retail activity are likely to increase during 2017, as the impact of sterling’s depreciation feeds through.

“With higher inflation beginning to weigh on households’ purchasing power, consumption patterns are likely to shift, creating winners and losers across the retail landscape.”

The survey covered the last week of November and first two weeks of December.

Howard Archer, chief European and UK economist at IHS Markit, said the survey showed “robust” retail sales, with consumer splashing out in the run-up to Christmas, thereby maintaining a strong fourth quarter performance and boosting hopes that GDP growth has held up well.

However, he added that purchasing power looks set to be increasingly squeezed as inflation rises appreciably due to the weakened pound.

“Indeed, it looks highly possible that inflation will move above earnings growth in 2017. We suspect inflation will reach 3% before the end of 2017 and will peak around 3.3% in the early months of 2018. Meanwhile, companies will highly likely look to clamp down on workers’ pay as they strive to save costs in a more difficult environment and as imported input prices are lifted by the substantially weakened pound.”