UK retail sales volumes fell 3.2% in December 2022 compared to the previous month, marking the largest monthly drop since the start of the COVID-19 pandemic, according to data from the Office for National Statistics (ONS). The decline comes amid high inflation, rising interest rates, and concerns over a potential recession.
Key Details
- Retail sales volumes dropped 3.2% from November 2022 to December 2022
- This marks the steepest monthly decline since January 2021 during a COVID-19 lockdown
- Sales were 5.8% lower than pre-pandemic levels in February 2020
- Food store sales volumes fell by 3.1% as consumers cut back on festive spending
- Non-food stores saw sales decrease by 3.6%, with clothing stores hit hard
- Online retail sales made up 27.3% of total sales volumes in December
“December’s retail sales make for alarming reading, showing the sharpest monthly drop since the depths of the pandemic lockdowns,” said Helen Dickinson of the British Retail Consortium. “Christmas trading was significantly worse than expected with many shoppers keeping their money for life’s essentials.”
Lead Up to the Decline
The UK economy had already shown signs of a slowdown leading up to the critical holiday shopping season. Gross domestic product (GDP) shrank by 0.3% in November, raising the possibility that the country had entered a technical recession with two consecutive quarters of negative growth.
“Surging prices of food, fuel and other necessities have forced many households to spend less on non-essential items, to cover the higher costs they face for heating and lighting their homes and putting meals on the table,” said Danni Hewson, analyst at investment platform AJ Bell.
The Bank of England has been aggressively hiking interest rates over the past year to try to tame double-digit inflation. Higher borrowing costs appear to be taking their toll, evidenced by December’s pullback in retail spending.
“The fall comes amid the backdrop of a looming recession in 2023 – which is seeing consumers tighten their purse strings as the cost-of-living crisis limits their disposable income,” said Victoria Scholar, head of investment at Interactive Investor.
Impact and Outlook
The decline in retail sales points to tough times ahead for UK retailers already operating on thin margins. Many companies rely on robust holiday sales to remain profitable for the full year. The sharp contraction recorded in December suggests weaker financial results could be on tap.
Additionally, the data reinforces an expected economic contraction in 2023. The IMF predicts Britain will be the only major economy to shrink this year, forecasting a 0.6% decline in GDP. Several economists believe the country may sink into a lengthy recession, extending beyond just two quarters.
“The further fall in retail sales in December increases the risk that the economy is already in recession and leaves it looking dead in the water as we enter 2023,” said Paul Dales of Capital Economics.
Ongoing factors weighing on consumer demand, such as high inflation and rising unemployment, indicate that a bounce back in spending seems unlikely in the first half of the year. This points to an extended period of weakness for retailers.
Some analysts believe the appointment of new Prime Minister Rishi Sunak has revived confidence to a degree. Yet his government faces tough choices on whether to pursue tax hikes or spending cuts to shore up UK finances. Either path could dampen economic activity in the near term.
“A recession still looks likely but today’s retail figures suggest it may not be quite as long or severe as once feared,” said Oliver Blackbourn of Janus Henderson Investors.
| Category | % Change vs Nov 2022 | % Change vs Dec 2021 |
|---|---|---|
| Total Retail Sales Volumes | -3.2% | -5.1% |
| Predominantly Food Stores | -3.1% | -6.3% |
| Predominantly Non-food Stores | -3.6% | -3.9% |
| Non-store Retailing | -4.0% | -4.2% |
Table shows breakdown of retail sales volume changes by category
In summary, December’s surprisingly weak retail activity adds to a bleak economic picture for Britain. Consumers have demonstrably pulled back spending amid high inflation and concerns over affordability. This puts pressure on retailers and raises the likelihood of the country entering an outright recession sometime in 2023. Significant declines in retail sales volumes traditionally signal troubled times for an economy. Unfortunately for the UK, the data released appears to validate these worries.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
