The retail sector in the UK experienced a severe decline in December, dealing yet another blow to the struggling economy.
According to recent data released by the Office for National Statistics (ONS), total trade volumes dropped by 3.2% compared to the previous month. This figure came as a shock, as economists had only predicted a slight decrease. In fact, it represents the steepest decline in sales since January 2021 when strict pandemic restrictions severely limited consumer spending.
The disappointing figures have left many retailers disheartened, especially after a promising increase in November’s sales. Deann Evans, the managing director for EMEA at online marketplace Shopify, stated that retailers were let down by the unexpected drop, as many customers had already stocked up on Christmas supplies in November, leading to lower spending in December.
Over the entire quarter, retail sales were 0.9% lower than the previous three months. This negative trend will inevitably impact overall economic growth during this period, according to the ONS. Furthermore, on an annual basis, retail sales plummeted by 2.8%, reaching their lowest level in the past five years.
November’s Sales Surge Proves Short-Lived
According to Capital Economics’ Alex Kerr, the rise in sales witnessed in November was merely a blip influenced by aggressive Black Friday promotions. Kerr argued, “The boost to sales proved short-lived.”
This news does not bode well for the U.K. economy as it approaches the end of 2023. There are growing concerns that the country may have entered a recession in the second half of the year. While gross domestic product experienced a 0.3% growth in November, this only reversed the contraction from the previous month. If there is a downturn in December, it is likely that the country will have experienced two consecutive quarters of contraction.
Despite the uncertainty, Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, remains optimistic that consumer spending will begin to increase at the start of the new year. Tombs explained that shopper caution clouded the final quarter of the year but expects the retail landscape to brighten as real disposable incomes recover. Additionally, despite a slight uptick in inflation in December, pay growth has started to outpace price rises.
Tombs confidently stated, “Demand should pick up tangibly this year.”