Retailers’ fears of a slowdown in Christmas trading appear to have been misplaced after official figures showed that December’s sales were significantly higher than the previous year.
National Statistics reported that average weekly sales in December were 3.6 per cent higher than the same month in 2004, while total volumes were up 0.4 per cent on November.
Despite the upturn, the total value of sales in 2005 was only 1.0 per cent higher than the year before, the lowest annual increase since the Second World War. The previous record low was 2.6 per cent in 2003.Annual sales growth in 2004 was 4.6 per cent.
Retailers of household and electrical goods were December’s real winners with a recovering housing market helping sales improve by a massive 5.2 per cent on the month. Partly offsetting that increase was a 0.6 per cent decline in food sales and a 2.6 per cent reduction in clothes sales.
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Gavin Redknap, retail economist at Standard Chartereed, said: “With the housing market now stable, and by some measures regaining strength, it’s not surprising to see consumers becoming more confident in spending - especially on household goods.
“However, we strongly doubt that a return to the boom period of pre-2005 will come about again any time soon, and would further note that stronger sales are only being generated by sizeable discounting.”
The statistic office confirmed this with its data showing that average prices in the shops are now 1.1 per cent lower than a year ago.
December’s positive retail figures will further cloud the outlook for interest rates.
The Bank of England’s rate-setting Monetary Policy Committee (MPC) has kept the cost of borrowing unchanged at 4.5 per cent since August’s quarter point cut, despite five consecutive quarters of below-trend growth, because of a fear that a year of soaring fuel costs might trigger an inflationary spiral with wages and prices both rising.
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But economic data released this week showed inflation moderating and earnings growth remaining muted leading analysts to predict that the Bank might move to cut rates as early as next month.
Yet John Butler, chief UK economist at HSBC, said the improving consumer picture now made a rate move in February very unlikely. “Today’s retail data provides confirmation that spending over the Christmas period was good and sits with the evidence of stronger activity in the housing market,” he said.
“Given that retail sales make up around 21 per cent of GDP, this alone should contribute 0.3 per cent points to quarterly GDP growth in the fourth quarter.”
But Mr Butler still believes the Bank will be forced to reduce borrowing costs later in the year because rising unemployment and falling disposable incomes will undermine consumer spending.