The UK economy was probably in recession during the second half of 2023 if the latest retail sales figures were anything to go by.
A surprise 3.2% slump in the level of sales in Great Britain during December appeared to show the cost of living crisis was continuing to hurt household finances despite a rise in wages that gave many consumers a bit more spending power.
It will be a mild technical recession should the gross domestic product readings for the third and fourth quarters of last year prove to be negative when the latest data is released next month.
But the R-word alone would undermine Jeremy Hunt’s claims that the UK is on the right track and make his assertions that tax cuts are the main route out of stagnation look more Truss-like by the day.
Hunt was probably unaware when he made his comment in Switzerland on Thursday of the dire situation on the high street (shops make most of their profits in the “golden quarter” of October to December) after City analysts forecast only a 0.5% month-on-month drop.
The downturn reported by the Office for National Statistics was unexpected after most of the big supermarket chains reported a healthy festive season and many large high street retailers – Next, for instance – said the same. Only the luxury brands such as Burberry were supposed to be having problems shifting their gear in the last month of the year.
Analysts expected sales to remain largely steady after a 1.4% increase in November that was tied to Black Friday and forecast a small uplift in shoppers looking for pre-Christmas bargains.
Now it seems those November sales simply stole from December, and rocketing prices, which have pushed up inflation by more than 16% over two years, took their toll.
Food sales were down, along with sales of clothing and fuel. It was as if everyone stayed at home and did not drive anywhere in December, or at least not as much as they had for several years.
Alex Kerr, an economist at the consultancy Capital Economics, said Friday’s figures would subtract about 0.15 percentage points from economic growth in December, “which increases the chances the economy may have ended 2023 in the mildest of mild recessions”.
Looking back further, the ONS said a 3.4% annual fall in the volume of sales in 2022 was compounded by a further 2.8% drop in 2023. “This put annual sales volumes at their lowest level since before the pandemic in 2018,” it said.
Kerr said: “Looking ahead, some of the drag from higher interest rates on existing mortgage holders may result in a further modest decline in real consumer spending in the first quarter of 2024.
“But interest rate cuts from June and the further boost to real household incomes from falling inflation will support a recovery in real consumer spending in the second half of this year.”
The figures will turn up the heat on Hunt to address rising business rates, which were cut during the coronavirus pandemic but will rise again in April.
The British Retail Consortium, which represents most of the large shop chains, said earlier this week that retailers would face a number of extra costs this year that it fears could increase the already rising level of insolvencies.
Ominously, it said: “With an election in the next 12 months, it is time political parties understand the value of retail to the wider economy and set out a clear and cohesive plan for retail in their manifestos.”
