CHRISTMAS spending sprees by eager shoppers helped the nation’s retail groups to ring up the sharpest annual rise in high street sales for more than a year last month, fuelling optimism that consumer demand is reviving.
Sales volumes in December, the most crucial trading month for retailers, rose 0.4 per cent, matching City expectations.
Coupled with an upward revision to November’s gain in sales, from 0.7 to 0.9 per cent, the respectable performance in the high street last month left sales up 4 per cent on a year earlier — the sharpest annual increase since November 2004.
The improving picture was emphasised by three-monthly figures, seen as a better guide to underlying trends, with the volume of goods sold in the final quarter of last year up 1.6 per cent against the previous three months — the steepest such rise for 18 months.
The more robust data will fan hopes that the worst of the consumer downturn may have passed. But economists gave warning that the resurgence in consumer demand could soon run out of steam in the face of pressures that could lead households again to curb their spending. “With muted wage inflation, unemployment edging up and record household indebtedness, there is no way these growth rates will be sustained,” Ross Walker, of RBS Financial Markets, said.
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He suggested that, while the strength of yesterday’s data might encourage the Bank of England to keep interest rates on hold for a few months, there was still a strong chance of cuts in rates later this year.
Vicky Redwood, of Capital Economics, agreed. “December’s rise will raise hopes that spending is on the road to recovery, but we remain sceptical that this sets the stage for a further improvement throughout 2006,” she said.
Ms Redwood and other analysts highlighted the big role played in December’s sharp increase in sales by aggressive discounting, as well as a heavy reliance for the strong performance on a surge in buying of household goods, including electronic equipment.
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Average sales prices in the shops for all goods were down 1.1 per cent compared with a year earlier during December.
Speculation that the Bank’s Monetary Policy Committee will now be more cautious over further cuts in the cost of borrowing was stoked by another set of buoyant household borrowing numbers for last month.
Gross mortgage lending of £26.3 billion in December was down 6 per cent from November, but was 25 per cent higher than a year earlier, marking a record annual gain, according to the Council of Mortgage Lenders. The British Bankers’ Association said that net mortgage lending last month rose £5.4 billion, from the £5.2 billion growth in November, reaching an 18-month high.