UK retail sales fall unexpectedly in January

Shopper in the snow in January Heavy snowfall put people off from going out to the shops, the ONS suggests

UK retail sales fell unexpectedly in January, confounding economists' expectations for a rise.

Volumes fell 0.6% from December 2012, hurt by heavy snowfall, the Office for National Statistics (ONS) said.

Volumes also fell 0.6% from a year ago, the first annual fall in 17 months.

The ONS highlighted weak sales in the food sector, which dropped 2.6% year-on-year to the lowest level since April 2004. It also said small stores had fared worse than large stores.

Smaller retailers in the food sector suggested that the heavy snow seen in the second half of January had affected sales.

Analysis

Icy conditions across much of the country in January hit many smaller shops with some forced to close altogether; that pushed down food sales quite dramatically and the weather also hit sales of fuel.

But this drop in High Street spending cannot all be blamed on the weather - there was also a sharper than expected fall in spending in the run up to Christmas.

Overall household spending has failed to increase over the last year. That has forced several high-profile store groups to close and many others to cut prices in an attempt to drum up business.

It all suggests that higher inflation and slow wage growth are squeezing household incomes and that is being felt in the UK's shops.

In contrast, larger retailers suggested that some of the increase they saw came from a rise in online sales.

The amount spent online accounted for 10.1% of all retail spending, excluding fuel.

In the food sector, the proportion of online sales rose 27% on the year. That meant that online sales now make up a record 3.7% of all food sales.

The data for December, which had previously shown a 0.1% drop in monthly volumes, was also revised to show a steeper 0.3% decline.

The ONS data had an immediate impact on sterling, with the pound falling by more than a cent against the dollar to $1.5477.

Inflation impact?

By value, retail sales fell by 0.4% on the month and were unchanged on the year.

The ONS said that sales at petrol stations were the biggest contributor to the drop in the amount spent.

Kate Davies, ONS: "Small stores have affected the figures, large stores have fared much better"

Analysts were disappointed with the figures.

"If you define Christmas sales as the November to January period, this has been the second worst performance over the festive/sales period over the past 15 years," said George Buckley, chief UK economist at Deutsche Bank, adding that 2009-10 was the worst.

But he noted that other surveys had held up better. For instance, the British Retail Consortium (BRC) has said that like-for-like retail sales in January rose 1.9% compared with January 2012 - the biggest rise in more than a year.

"Perhaps some of today's weakness reflects higher inflation, which has risen by 0.5 percentage points over recent months," he said.

Prospects for the economy

The retail data raises concerns about the strength of the UK economy, which shrank by 0.3% in the fourth quarter of 2012.

Some analysts had already feared that it could contract again in the first quarter of 2013, which would mean the UK would slip back into recession.

"This probably brings the question of 'triple-dip' back on the table again," said Rob Wood, economist at Berenberg Bank.

"If this is the sort of disruption we see from snow and it's reflected in output in the rest of the economy, then it could be bad news for Q1," he added.

But Chris Williamson from Markit said that while the snow had clearly had an impact on sales, the decline was not as severe as that seen in previous years.

"For example, the 0.6% decline in January compared with a 1.9% monthly fall in December 2010, when the country was also hit by heavy snow.

"The data therefore add to other survey evidence which suggests the economy got off fairly lightly from snow disruption, further allaying fears of a weather-related 'triple-dip' recession."

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