UK retail sales – February release

Figures released today by the Office for National Statistics (ONS) show that UK retail sales volumes excluding fuel fell by 0.5% (seasonally adjusted) between December and January. The three-month comparison, which reduces monthly volatility, showed a similarly weak picture; excluding fuel, sales volumes in November-January were down 0.6% against the previous three months.

Only a period of comparative resilience during the summer of 2012 kept growth in the past year in positive territory. Compared with November-January a year ago retail volumes were still 0.9% up, but including fuel just 0.1% higher.

But last summer’s resilience has been fading steadily in recent months, and these bleak figures continue that trend. They reflect the continuing weakness of household finances as disposable incomes remain squeezed alongside very low levels of consumer confidence. The raft of retail business failures of recent months confirms tough conditions in the High Street and continuing stiff competition from the internet. The average weekly spend online in January was almost 9% higher than a year ago.

Analysis of the data for the latest quarter shows that predominantly food stores suffered a 1.4% decline in volumes continuing the trend of recent years; while textile, clothing & footwear stores saw volumes down 2%. In both cases, volumes are markedly lower than a year ago, but for food stores values are up 1.7% reflecting strong food price inflation. Textile, clothing & footwear stores’ values are 0.5% lower. Department stores continued to enjoy decent growth with volumes up 1.7% quarter-on-quarter and a healthy 8.7% on the year.

We expect no short-term relief from the recent weakness in retail sales. Inflation has been stuck at 2.7% for four months and is likely to edge higher prolonging the squeeze on household incomes while the labour market faces more difficult times as economic stagnation persists. We therefore expect retail sales volumes to continue to struggle in the next few months. By the second half of 2013 economic conditions will begin to improve somewhat but it will take time for the mild economic recovery to translate into healthy growth in the High Street.