UK retail sales tank in December, dragging 2017 to four-year low

Official UK retail sales sank sharply last month in the worst December performance for seven years as households continued to feel the real income squeeze.

Retail sales volumes in December slipped 1.6% on the preceding month, the Office for National Statistics said, worse than the 1.1% dip that the market expected and after the previous month's Black Friday-boosted growth was revised to 1.1%. It was the biggest monthly drop since June two years ago as well as being the worst festive result since 2010.

Year on year, retail sales were up 1.3%, which was down from the previous month's 1.5% and well short of the 2.6% consensus forecast.

The fall in sales was led by a 1.3% month-to-month decline in non-food sales, a 1.1% drop in food stores sales and a 4.8% decline in quantities not bought in-store.

If adding auto fuel sales into the seasonally adjusted mix, ONS said December's retail sales were down 1.5% month-on-month versus economists consensus for a 1.0% decline, with the previous month's growth revised to 1.0%.

Total retail sales were therefore up 1.4% on December the previous year compared badly with the 2.6% estimate and the prior month's 1.5% gain.

Black Friday sales in November distorted the readings for December, ONS said, noting that consumers "continue to move Christmas purchases earlier with higher spending in November and lower spending in December than seen in previous years".

December’s drop means that quarter-on-quarter growth in retail sales volumes slowed to 0.4% in the fourth quarter, from 0.8% in the third, while for the whole of 2017, sales volumes increased 1.9%, the lowest annual growth since 2013.

“The longer-term picture is one of slowing growth, with increased prices squeezing people’s spending," said ONS senior statistician Rhian Murphy.

“Over the year the proportion of internet spending is continuing to rise, with almost one in every five pounds spent online by the end of 2017."

The pound retreated slightly against the dollar, pulling back from its 18-month highs, and versus euro on the news.

Sterling dropped back close to $1.39 following the release and, said analyst David Cheetham at XTB, "given the large gains seen over the past week there could be further downside ahead".

Economist Sam Tombs at Pantheon Macroeconomics said December’s plunge in retail sales confirms that November’s surge merely reflected people bringing forward Christmas present shopping to take advantage of Black Friday discounts.

Even though the data are seasonally adjusted, he noted that ONS process has not yet adjusted for the new pattern of spending since Black Friday took off in Britain in 2014, with the decline in non-store retailing non-food sales consistent with this.

"The 1.1% drop in food stores sales, however, can’t be attributed to Black Friday, so amid the volatility there are signs of underlying weakness too."

He added: "The retail sector accounts for only 6% of economy-wide output, but its slowdown has been mirrored by other sectors, such as construction. Accordingly, we still think that GDP growth likely slowed to 0.3% in Q4, from 0.4% in Q3."

Ruth Gregory at Capital Economics said that, given the volatility in the data around this time of year, it was hard to get a clear picture of underlying growth.

"It is worth noting that retail sales values rose by over 4% on the year in December, suggesting consumers aren’t tightening their belts in response to higher inflation or interest rates.

"What’s more, with inflation likely to continue to fall and pay growth showing signs of improvement, there should be scope for spending growth to gather some momentum over the course of this year."