British retailers report lacklustre sales around Christmas, indicating subdued Christmas spending, according to data released by the British Retail Consortium (BRC). The figures suggest that the UK economy may have entered a mild recession just months before a national election. The BRC revealed that spending in December was only 1.7% higher than the previous year, but when adjusted for inflation, it translated to a decrease in purchases. BRC Chief Executive Helen Dickinson attributed the disappointing sales to weak consumer confidence and described 2023 as a challenging year for retail sales growth.
Inflation and the Bank of England’s decision to raise interest rates to 5.25%, the highest in 15 years, have impacted British shoppers. Consumer price inflation stood at 3.9% in November, down from the peak of 10.1% in January. However, wages failed to keep up with rising prices for most of 2023, leading to a contraction of 0.1% in the economy during the third quarter. Economists surveyed by Reuters anticipate further decline in data to be released this week.
Over the course of 2023, retail spending witnessed a meager increase of 3.6%, primarily driven by an 8.1% rise in spending on food. However, non-food spending declined by 0.1% over the year, with a sharper drop of 1.5% in the final three months of 2023. In terms of Christmas shopping preferences, consumers appeared to opt for beauty, health, and personal care products over clothing, jewelry, and technology gifts.
Reports from retailers regarding their Christmas trading have been mixed. While clothing chain Next and discount supermarkets Aldi UK and Lidl GB reported robust outcomes, sportswear group JD Sports Fashion warned of a potential dip in annual profit.
The BRC’s latest figures indicate a slowdown in sales growth compared to November when sales increased by 2.7%. Official retail sales data, which covers a wider range of stores than the BRC, revealed a 5.7% yearly rise in non-fuel spending for November, equating to a 0.3% rise in sales volumes after accounting for inflation.
In a separate report, Barclays highlighted weaker spending growth but suggested that part of the decline could be attributed to lower inflation. In December, Barclays customers spent 2.3% more on credit and debit cards compared to the previous year, a slight decrease from the 2.9% growth observed in November. Spending at petrol stations and supermarkets experienced a slowdown, likely due to lower fuel prices and seasonal promotions in November. However, spending at pubs, bars, and clubs saw a noticeable increase.
We expect inflation to fall further in the opening months of 2024, putting more spending power in the pockets of UK consumers and helping to support continued spending despite weak economic growth, said Barclays Chief Economist Jack Meaning.
The lacklustre Christmas spending in the UK raises concerns about the health of the economy and its impact on the upcoming national election. British retailers are grappling with several factors, including high inflation and rising interest rates, which have likely contributed to the subdued sales during the festive season. With official data for the three months ending in November yet to be released, economists and analysts await further insights into the state of the UK economy.
