Christmas trading figures worse than feared

Christmas trading for Britain's hard-pressed retailers was even worse than feared after figures today showed a drop in volumes in December.

The Office for National Statistics (ONS) said retail sales volumes fell 0.1 per cent month-on-month and were just 0.3 per cent higher than a year earlier.

This dashed City expectations for a modest rise and reinforced fears that the first estimate of GDP for the final three months of 2012, due next Friday, will show the UK is halfway towards a triple-dip recession.

While the high street continued to struggle, prompting the likes of HMV and Jessops to call in administrators, firms with strong internet operations benefited from the roll-out of shopping apps for users of smartphones and tablet computers, as well as the development of click and collect services.

Internet sales accounted for 10.6 per cent of all sales in December, an increase of 1.2 per cent on the previous year.

With inflation at 2.7 per cent in December and wage growth much weaker than this rate, today's figures showed many Britons reined in their spending over the Christmas period.

This impacted sellers of household goods, such as electrical appliances, furniture, hardware and music and video, as volumes declined three per cent in the biggest fall since January 2010.

As noted in recent trading updates from John Lewis, Debenhams and House of Fraser, department stores weathered the storm and posted a 0.4 per cent rise in sales volumes in the ONS data. Clothes and shoe store volumes were up 0.7 per cent.

But many retailers held their nerve and have said they refused to be panicked into unplanned price discounting in a bid to preserve their margins.

Some retailers have enjoyed strong trading, with budget fashion chain Primark reporting a 25 per cent jump in sales, while catalogue chain Argos posted a 2.7 per cent rise in like-for-like sales.

PC World and Currys owner Dixons benefited from the demise of rival Comet posting an eight per cent rise in UK and Ireland sales, while clothes and homewares giant Next also reported strong sales growth over Christmas.

Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "Nonetheless, it is hard to see consumer demand improving soon.

With households' real pay still falling, spending is likely to continue to stagnate in real terms."

The latest figures will mean the UK is likely to have seen another contraction in the final quarter of 2012, possibly with a decline of 0.2%.

David Kern, chief economist at the British Chambers of Commerce, said the retail sector was in a "relatively parlous state", but said the current situation in the economy did not merit unnecessary gloom.

He added: "There are also positive features in the economy. In recent days we heard welcome news of strong UK car exports, and our own recent survey also points to relatively strong business confidence.

"It is premature to talk about a triple-dip recession, but it is clear that the economy's performance is too weak, and sustained measures are needed to support growth."

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