The crucial Christmas shopping period was weaker than expected in the UK as consumers burdened by higher inflation carefully watched their spending.
Total sales grew 1.7 percent in December, compared with almost 7 percent growth a year earlier, the British Retail Consortium and consultancy KPMG said in a report Tuesday. Sales of non-food items declined over the three months through December, with shoppers particularly avoiding big-ticket purchases such as furniture and homeware. Clothing, jewellery and technology were other gift categories that struggled.
“The festive period failed to make amends for a challenging year of sluggish retail sales growth,” said Helen Dickinson, chief executive of the BRC. “Weak consumer confidence continued to hold back spending.”
The weak data may stoke concerns that the UK economy could tip into a recession as consumers worry about their financial security. Even as inflation eases in the UK, shoppers are still having to spend more to get less and many are focusing on necessities such as food, heating and housing costs.
The holiday spending season already got off to a weak start in November as consumers felt the burden of the higher cost of living. It’s an important period for retailers with November and December accounting for a fifth of the year’s sales, and even more in some cases.
Food sales were a notable bright spot, increasing 6.8 percent in the three months to December, amid higher prices. Volumes of goods sold also increased last month compared with a year earlier. Shoppers spent a record £13.7 billion ($17.4 billion) on food in December as they entertained family and friends, data provider Kantar said last week.
Discount retailers appear to have done well, as cash-strapped Brits search for bargains. Aldi and Lidl enjoyed record sales in the run-up to Christmas, while budget brand B&M European Value Retail SA on Tuesday announced a special dividend, with UK sales up 6.3 percent in its three quarters through Dec. 23, 2023. Shoe Zone Plc also reported rising sales and a 19 percent rise in pretax profit.
Beauty, health and personal care products as well as toys and gaming also sold well with consumers focusing on affordable gifts and treats. Online sales fell almost 1 percent year on year, which was still a better performance than Christmas 2022 when postal strikes encouraged people to visit shops in person instead.
Trading updates this week from J Sainsbury Plc, Tesco Plc and Marks & Spencer Group Plc will provide more details on how some of the UK’s largest retailers fared over the Christmas season.
“The festive feel-good factor was lacking this year as many retailers faced a disappointing December,” said Paul Martin, UK head of retail at KPMG. “The constant drip” of economic challenges consumers have faced over the last two years “has finally come home to roost.”
Spending increased on entertainment and travel in December as consumers prioritise experiences and holidays, according to separate data from Barclays, which processes credit and debit card transactions. Spending at pubs, bars and clubs rose nearly 8 percent fuelled by Christmas parties and gatherings.
The difficult environment for retailers is expected to continue this year as shoppers see little respite from higher living costs. The situation will be worsened by shipping delays due to unrest in the Red Sea as well as increases in business rates and the national living wage from April.
Weaker retail performance may revive talk of a technical recession, defined as two consecutive quarters of contraction. That would be a bleak backdrop for Prime Minister Rishi Sunak to attempt to win reelection and it could also spur speculation the Bank of England will move toward cutting interest rates.
By Elina Ganatra and Katie Linsell
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