January 22, 2016 / 9:35 AM / 2 years ago

UK Christmas retail sales slide, pressure on public finances eases

LONDON (Reuters) - British consumers reined in their Christmas spending by the biggest amount in over six years but there was more cheer for Chancellor of George Osborne after government borrowing dropped sharply, official data showed on Friday.

Crowds of shoppers looking for bargains in the sales walk through the Westfield shopping centre in Stratford, London December 27, 2015. REUTERS/Russell Boyce

The retail numbers added to signs that Britain’s economy slowed late last year, and Osborne will still struggle to meet his budget goals for the tax year which ends in March.

British consumers have been a big driver of the economy at a time of weak external demand, but Friday’s data raise questions about whether they will sustain expansion as wage growth slows.

Reflecting discounting and mild weather which hurt clothing sales, the value of retail sales in December was 1.0 percent below spending a year earlier, the first fall since May 2009.

The figures broadly tally with the message big retailers, whose industry body, the British Retail Consortium, gave earlier this month that Christmas sales had been disappointing.

Some clothing retailers, notably market leader Marks & Spencer (MKS.L) and Next (NXT.L), posted disappointing updates, partly blaming the weather although supermarkets generally did better than expected in the holiday period.

Clothing sales were down more than 4 percent on the year in December, the biggest drop since April 2012, the Office for National Statistics said.

For the fourth quarter as a whole, however, growth in sales volumes picked up to a one-year high of 1.1 percent, suggesting consumer spending will support broader fourth-quarter economic data due next week at a time when other sectors are fading.

Sales volume growth in 2015 overall was the fastest in 11 years, but analysts expect it to slow in 2016.

“The recovery in spending will lose some momentum as job growth fades from recent stellar rates, inflation strengthens and the fiscal squeeze intensifies,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.


Osborne will need to tighten the fiscal screws before the tax year ends in March if he is to meet his goal of cutting the budget deficit to 73.5 billion pounds, or 3.9 percent of GDP.

Data on Friday showed public borrowing in the first nine months of the tax year had already exceeded the target, reaching 74.2 billion pounds -- though this still represented the lowest total since 2007, before the financial crisis.

January typically brings a large budget surplus as annual income tax payments fall due, and December’s borrowing of 7.5 billion pounds was much less than forecast, down sharply from 11.7 billon in December 2014 and the lowest since 2006.

Stronger tax receipts helped break two months of budget disappointments in October and November, as did a rare year-on-year fall in the cash amount of government spending.

“The fall in borrowing in December should afford the chancellor a slightly more comfortable night’s sleep over the weekend,” Sam Alderson, an economist at consultancy CEBR, said.

But he said Osborne still looks likely to miss his borrowing target. Britain’s budget watchdog said the government needed to run a 5.5 billion-pound surplus over the next three months, compared with a 4 billion-pound deficit over the same period last year.

The Office for Budget Responsibility said higher income tax receipts and property transactions taxes would probably pick up in the final few months of the year, but that “considerable uncertainty nonetheless remains”.

Osborne warned earlier this month that Britain faced a “cocktail of risks” from abroad, and said again on Friday that it was essential to stick with the deficit-reduction plan that has been his political lodestone since taking office in 2010.

Reporting by David Milliken; Editing by Toby Chopra

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