CONCERNS are mounting that the UK economy contracted at the end of last year, after official figures showed a surprise drop in sales volumes in December.
Consumer spending, which accounts for some two-thirds of the economy, is coming under pressure from rising prices and below-inflation wage growth, and the retail sector has suffered a bleak start to the new year with high street chains Blockbuster, HMV and Jessops calling in the administrators.
Yesterday’s figures, from the Office for National Statistics (ONS), revealed retail sales volumes fell 0.1 per cent between November and December, confounding economists’ predictions of 0.2 per cent growth.
Howard Archer, chief UK and European economist at IHS Global Insight, said shoppers’ spending power was being squeezed as inflation, which held steady at 2.7 per cent last month, is on track to reach 3 per cent in the near term.
He said: “Concerns over the current state of the economy and the outlook deepened markedly in December. We have pencilled in a 0.2 per cent quarter-on-quarter drop in GDP in the fourth quarter of 2012.”
The ONS figures provided further signs that shoppers shunned the high street, as non-store retailing volumes grew 1.6 per cent month-on-month, and accounted for 10.6 per cent of all retail sales in December.
A slew of recent trading updates has shown that cheap fashion, must-have gadgets such as tablet computers and a strong online presence have been the key to overcoming an otherwise tough festive season.
Rupert Eastell, head of retail at accountant Baker Tilly, said: “In the past, consumers’ buying habits were pretty much dictated by what retailers offered, but more recently we’re seen a revolution taking place and the consumer is now calling the shots.
“Retailers need to ensure that they are offering what the customer wants, and when they want it. I think this change means there will be further casualties but more importantly, the successes will outnumber the failures.”
Keith Richardson, retail sector lead at Lloyds Bank Commercial Banking, said the most successful retailers have been those that achieved the right balance between a physical and online presence, and this trend is likely to continue in the year ahead.
Department store group John Lewis has reaped the benefits of its “click and collect” service, which allows customers to order over the internet and pick up their purchases in store.
The employee-owned retailer said yesterday that its sales rose 19 per cent to £75.8 million last week as it enjoyed a “cracking finale” to its post-Christmas clearance. Across its three Scottish branches, Glasgow delivered the strongest increase of 15.3 per cent, with Aberdeen up 10.1 per cent and sales in Edinburgh rising 7.5 per cent.