December UK retail sales hints at Q4 GDP contraction

The ONS’ latest retail sales figures showed a sharp decline in December, pointing to a shrinking economy while increasing the likelihood of the UK heading for triple-dip recession. Retailers in the UK saw reduced sales during the holiday season and fell short of achieving the growth they expected to see during the festive period.

The Office of National Statistics reported a 0.1% drop in retail sales during December coming out well below market expectations of a positive 0.2% growth, while the year on year increase of 0.3% marked the lowest annual rise in sales volume. Sales data excluding fuel dropped 0.3%.

The decline in retail sales is being attributed to the drop in household goods.

The decline in the retail sales during December now puts focus on the key Q4 GDP data for 2012 which in all aspects could come out lower.

Loss in productivity during the cold winter could put yet another blow to the month of January 2013 as well. A drop in January along with Q4 declines could well confirm another period of gloom for the UK economy.

Previous retail sales figures wasn’t upbeat either. Sales fell 0.8% in October and remained largely unchanged in November. Taking into consideration December’s retail figures the retail sector is likely to weigh down on the UK’s GDP report.

Traditional high street retailers continue to face stiff competition from their online counterparts with several high street retails such as Jessops, HMV and Blockbuster going under, losing out to rivals such as Amazon, Lovefilm, Netflix and so on. Reports from high street retailers was mixed with Next, John Lewis reporting excellent sales while Morrissons was struggling.

The shift to online retails is further confirmed as non store retail sales increased by 1.6% on a monthly basis and accounted for 10.6% of the total retail sales in December 2012.

BRC’s director general confirmed the above stating that without online retail sales surge, the total figure would have been even more dismal.

The week ahead will be key as other important economic news will include the January MPC meeting minutes. So far policy makers have stayed away from further quantitative easing in an effort to study the state of the UK economy. A downbeat Q4 GDP could well push the policy makers into evaluating the QE policy.

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