UK Retail Sales Fall As Inflation Tightens Consumer Spending

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Official data presented on Friday showed that UK retail sales has sharply declined in December, showing weaker holiday spending period for stores, as higher inflation pressured consumers’ spending ability.

The Office for National Statistics (ONS), Britain’s statistics agency, stated that products volume sold in shops and online was down 1.5 percent from November 2017, when the country presented strong sales growth of 1 percent.

This was the biggest drop since June 2016 as well as the most for a December in seven years. This was also more severe than analysts’ expectation of 0.8 percent.  

On a year-to-year basis, UK’s retail spending slipped 1.4 percent in the previous month. It was lower than the 3 percent analysts had estimated.

Moreover, brick-and-mortar shops are also struggling to adjust with a broad change in the sector. They are particularly having trouble adapting to consumers turning to online shopping.  

ONS reported that internet sales were down 18 percent from the 19.8 percent in November and Black Friday, but was a new record high for December.

The agency also said that the trend towards digital purchases is ongoing. Nearly one in five pounds was now being spent online, ONS added.     

Higher Inflation Pressures Consumer Spending

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Consumers had continued to move their Christmas buying earlier, given the jump in sales in November. However, the agency said that the longer-term picture is one of sluggish growth, with higher prices tightening on people’s expenses.      

December is a vital factor to the income of retailers and to the larger economy. Seeing the latest slump indicates that buyers were more careful with their expenses.

Their behavior was mainly due to inflation outperforming wage increases. The space between these two seemed to have affected household incomes. Shoppers are either avoiding UK’s high street or looking for less pricey items.

Inflation has been beating higher wages, which is then hurting the spending power of shoppers.   

Chief business economist Chris Williamson stated that the figures further raised the possibility of rising prices and stubbornly weak pay growth to continue eating away consumer spending power, and will drag on the economy in 2018.

UK retail sales account for about 20 percent of the country’s gross domestic product (GDP). It has been an important basis for overall growth since the Brexit vote.    

Economist Ben Brettel said that the big question now is whether this suggests the beginning of a worrying trend for the economy, or whether a falling inflation and rising wages will become an asset.

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