Christmas Comes Early for U.K. Stores as Sales End Record Drop
The U.K. started Christmas shopping early this year, with a surge in spending on toys and clothes powering a rebound from the longest-ever run of declines in retail sales.
The 0.8% increase last month in the volume of goods sold in shops and online was stronger than the 0.5% expected by economists. It was also the first growth since April, when most stores started trading again after the pandemic lockdown.
Some shops reported consumers bringing forward pre-holiday shopping. Widespread supply-chain disruptions have raised concerns about bare shelves around Christmas.
“A high proportion of consumers are doing their Christmas shopping early this year given supply chain uncertainty and the potential for product shortages closer to the big day,” said Aled Patchett, head of retail and consumer goods at Lloyds Bank.
As well as providing some relief for the U.K.’s beleaguered shops, the increase may also reassure Bank of England policy makers, who had expressed some concerns that weakness in consumption posed a risk to the recovery. That makes the data the latest in a series of economic reports in the U.K. this week that are likely to solidify expectations the BOE will turn toward fighting inflation and raise interest rates in December.
Figures on Tuesday confirmed the jobs market remained strong even after the end of the government’s pandemic job support plan. on Wednesday, official statistics showed inflation has reached the highest level in a decade.
Separate data Friday showed the damage inflation is already doing to the economy. The spike in prices saw the cost of servicing U.K. government debt more than tripled in October from a year earlier, leaving the budget deficit higher than economists forecast.
Investors are currently pricing in a 15 basis point BOE rate increase to 0.25% next month, a step that would be the first hike by a major central bank since the pandemic started.
Still, Royal Bank of Canada analysts say “the strength of recent data, in particular the labor market data” means a bigger move will be necessary next month, and are predicting a rise of 25 basis points.
Shops that don’t sell food drove the retail sales increase with a 4.2% rise in volumes. Clothing stores suggested that early Christmas trading boosted sales, the ONS said.
Fuel sales fell 6.4% in the month, returning to more normal levels after panic buying during a supply crisis at the end of September. The portion of sales online declined to 27.3% in October, the lowest since March 2020 but still substantially higher than the 19.7% where it started when the pandemic struck.
Shoppers are becoming more willing to splash the cash on big items, according to a survey from the market research firm GfK. Its index of intentions regarding major purchases jumped in November, while an overall gauge of confidence also rose.
“One highlight for both physical and virtual retail is the seven-point jump in major purchase intentions in the run-up to Black Friday and Christmas,” said Joe Staton GfK’s director of client strategy. “Is this a sign that shoppers are ready to bounce back, after last year’s cancelled family gatherings, with a Christmas splurge in coming weeks? That’s how it looks, but consumers also know that when the festivities are over it’s going to be a tough year in 2022.”
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