Consumer spending failed to keep pace with inflation in December, figures suggest, likely bolstering the view among economists that the UK is in recession.
According to data from the British Retail Consortium (BRC) and Barclaycard, spending increased in December compared to a year earlier by just 6.9% and 4.4% respectively.
Both figures fell short of inflation, which was 10.7% at the time of the most recent measurement in November,
They were also flattered by the impact of COVID in December 2021 when the spread of the Omicron variant forced people to cut back on Christmas gatherings.
There was additional, independent evidence that online sales declined last month as a result of consumers’ concerns over the effects of the strikes by frontline Royal Mail employees.
According to e-commerce trade group IMRG, sales were down 12% from the same month the previous year.
There were also significant supply disruptions during the final week before Christmas.
The BRC’s retail sales monitor, compiled with KPMG, warned that shoppers faced further price hikes ahead if costs, such as energy bills, did not settle down.
According to Paul Martin, UK head of retail at KPMG, the cost of living crisis dominated the holiday season.
“While the data for sales growth in December look solid, with sales values up by nearly 7% from last year, this is primarily due to things costing more and hides the fact that the volume of goods that people are buying is down on this time last year,” he said.
“Consumers avoided expensive technology purchases in December, favouring energy-efficient home appliances and traditional Christmas gifts like clothing and cosmetics.”
He added: “Retailers are facing a difficult few months after Christmas as consumers manage rising interest rates and energy prices by decreasing their non-essential expenditure, and strike action across a variety of sectors might potentially damage sales too.”
Why the UK already looks to be in recession
The information was interpreted as supporting the belief of many economists and the Bank of England that the consumer-driven UK economy is already in recession.
An official recession would be declared if a negative growth rate were to be recorded between October and December 2022. The Office for National Statistics has already indicated a decrease for the quarter ending July-September.
According to a Reuters’ poll of economists, November’s economic data will show a 0.3% month-on-month fall on Friday.
Financial markets are anticipating further interest rate increases from the Bank of England to counter the threat of inflation.
A note by Pantheon Macroeconomics released on Monday warned: “November’s GDP data should leave little doubt that a recession has begun.”