January 19, 2018 / 10:37 AM / a month ago

UPDATE 1-UK retail sales slide in December, capping tough year for consumers

    * Sales shrink 1.5 pct mm, well below forecasts
    * Biggest monthly drop since June 2016, worst Dec since 2010
    * ONS says long-term picture is of slowing growth
    * Pound slips and government bond prices rise on data

 (Adds reaction, details)
    By Andy Bruce and William Schomberg
    LONDON, Jan 19 (Reuters) - British shop sales slid by much
more than expected in December, capping off the weakest year for
retail since 2013 as consumers squeezed by the Brexit hit to
prices continued to keep a tight grip on spending.
    Retail sales volumes dropped 1.5 percent from November, the
Office for National Statistics (ONS) said, well below
economists' forecasts of a monthly dip of 0.6 percent in a
Reuters poll, and more than reversing a 1.0 percent rise in
November.
    That marked the biggest month-on-month fall since June 2016,
the month Britons voted to leave the European Union, as well as
the weakest December performance for seven years.
    Britain's economy slowed in 2017 as higher inflation -
caused by the post-referendum fall in the pound - hurt the
spending power of consumers, although forecasts of a bigger hit
to growth were confounded.
    Friday's data pushed the pound down against the dollar and
British government bond prices hit a session high.
    The Bank of England, which is considering when to follow up
on November's first rate hike in a decade, expects the squeeze
will ease in 2018 as inflation cools and wage growth ticks
higher. Recent surveys of consumers suggest they do not share
the central bank's optimism right now.
    "The longer-term picture is one of slowing growth, with
increased prices squeezing people's spending," ONS statistician
Rhian Murphy said about Friday's data.
    Many shoppers brought forward their Christmas spending into
November to take advantage of Black Friday sales promotions, the
ONS said. 
    Black Friday promotions have become commonplace in Britain
only in the last few years, making it difficult for the ONS to
adjust its data so figures for November and December can be
compared easily from year to year.
    But whatever distortions were caused by Black Friday sales,
analysts were doubtful it did retailers any good.
    "All of this discounting is likely to have decimated profit
margins and retailers will be counting the cost," said Richard
Lim, chief executive at consultancy Retail Economics.
    On Friday, Britain's biggest floor coverings retailer
Carpetright          lost almost half of its stock market value
after it warned on its full-year profits, blaming a drop in
consumer confidence.
    Retailers have reported mixed fortunes over the Christmas
period.
    Last week Britain's biggest retailer Tesco           missed
forecasts for Christmas trading as strong food sales were
undermined by weak demand for general goods such as DVDs and
computer games. Discount supermarkets saw strong growth.
    Looking at the fourth quarter as a whole, which smooths out
monthly volatility in the data, the ONS said sales growth slowed
to 0.4 percent, compared with 0.8 percent in the third quarter. 
    As a result, retail sales will contribute almost nothing to
economic growth in the last three months of 2017.
    Retail sales volumes for 2017 as a whole grew by 1.9
percent, a far cry from the 4.7 percent increase in 2016 and
marking the weakest full-year performance since 2013.
    In annual terms, retail sales volumes grew 1.4 percent in
December, weaker than all forecasts in the Reuters poll. Sales
in November grew 1.5 percent.   

 (Reporting by Andy Bruce; editing by Andrew Roche)
  
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