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Drop in retail sales points to further dip in economy

UK retail sales volumes fell 0.1% in December, according to seasonally adjusted data that reinforced expectations that the overall economy suffered another relapse in the fourth quarter of last year.

The month-on-month dip, revealed yesterday in figures from the Office for National Statistics (ONS), contrasted with economists' consensus forecast of a 0.2% rise.

The data provided confirmation the key festive trading period was tough for the retail sector, amid weak consumer confidence. Entertainment goods retailer HMV and photographic chain Jessops have collapsed in recent days.

UK retail sales volumes had been flat between October and November. And, comparing the three months to December with the third quarter of 2012, retail sales volumes were down 0.6%.

Sales volumes last month were up only 0.3% on December 2011, the weakest year-on-year growth since April.

Excluding fuel, volumes fell by 0.3% month-on-month in December. The ONS said non-food sales, the more discretionary element of consumer spending, dropped 0.7% during December. Food sales fell 0.3%. Household goods sales tumbled 3% – the sharpest monthly drop in this category since January 2010.

Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "Retail sales volumes fell marginally in the key month of December, which was not only disappointing and problematic for many retailers but may well have sealed a renewed dip in GDP (gross domestic product) in the fourth quarter of 2012.

"With consumer spending on services seemingly limited in the fourth quarter on top of the 0.6% drop in retail sales, it seems odds-on that personal expenditure contracted over the quarter. And consumer spending accounts for some 63% of GDP."

He forecasts ONS figures due next Friday will show GDP fell 0.2% in the fourth quarter.

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