January 17, 2014 / 9:33 AM / 5 years ago

Small stores help UK retail sales to fastest growth in 9 years

LONDON (Reuters) - British retailers had the fastest annual sales growth in more than nine years last month, confounding gloomy reports from many bigger chains and offsetting some signs of weakness in other areas of the economy.

Shoppers pass a sale sign on Oxford Street in central London December 28, 2013. REUTERS/Olivia Harris

Sterling jumped and government bond prices tumbled after the data, which was much stronger than expected. It revived speculation about when the Bank of England might raise interest rates.

Helped by a strong performance by smaller stores, British retail sales surged by 2.6 percent in December to show an annual rise in volumes of 5.3 percent - the fastest growth since October 2004 - Office of National Statistics (ONS) data showed on Friday.

This far outstripped economists’ forecasts before the data for monthly growth of 0.4 percent - similar to November’s rate - and for sales to be 2.6 percent higher on the year.

The upbeat figures increase the chance that there was strong overall economic growth in the last three months of 2013, though weak sales in October and November mean that for the quarter as a whole, sales volumes are up just 0.4 percent.

Alan Clarke, an economist with Scotiabank in London, said Friday’s data would not push gross domestic product growth above 1 percent in the fourth quarter, but would help offset the hit from weak construction data last week.

The ONS numbers contrasted with figures from the British Retail Consortium which covered mostly bigger stores and suggested shoppers spent just 1.8 percent more in December than a year earlier, slowing from November.

However, the government statistics showed sales at smaller stores with less than 100 employees rose by an annual 8.1 percent in December, compared with 2.6 percent growth for larger stores.

The surge in sales at smaller retailers might reflect bad weather in December which could have prevented shoppers from reaching bigger stores, some economists said. Online sales also performed very strongly.

Laggards among the bigger chains include supermarket Tesco, Britain’s biggest retailer, which posted a fall in Christmas sales even though it has invested over 1 billion pounds ($1.63 billion) in a turnaround plan and Marks & Spencer, which posted a tenth straight quarterly fall in underlying general merchandise sales.

Other poor performers were Morrisons, the fourth-biggest grocer, and Debenhams, the country’s second-largest department store group.

Equity analysts scaled back full-year profit expectations for these firms, which variously blamed a continuing squeeze on household incomes, an unprecedented level of pre-Christmas discounting, fewer customers on the high street and unseasonally mild weather.

Friday’s figures are likely to help Britain’s economy record a strong end to 2013 when fourth-quarter gross domestic product data is released on January 28.

Britain’s economy grew by 0.8 percent in the three months to September, well above its long-run average.

Some economists are concerned about the longer-term prospects for British consumer spending, as it has partly been funded by households reducing how much they save, as wages have risen much more slowly than inflation.

“It’s very possible that consumers could take a breather after finally splashing out for Christmas and in the sales, given that inflation is still running at double the rate of earnings growth,” said Howard Archer at IHS Global Insight.

Additional reporting by William Schomberg and James Davey Editing by Jeremy Gaunt

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