Retail sales slide over Christmas amid Omicron; inflation fears hit UK consumer confidence – business live | Business
FTSE 100 drops 1% as ‘shockwaves’ hit markets
The UK stock market has fallen over 1% at the start of trading, as global equities are hit by weak economic data and concerns over looming interest rate rises.
The blue-chip FTSE 100 index has dropped by 85 points to around 7500 points, the lowest in over a week.
Mining stocks being pulled down by growth concerns after a late slide on Wall Street last night.
Technology-focused investment trust Scottish Mortgage has dropped over 4%, after US tech stocks fell yesterday – even before Netflix missed subscriber forecasts.
Investors are concerned that the US Federal Reserve could hike interest rates several times this year to bring inflation under control, even though Omicron appears to have slowed the recovery from the pandemic.
European markets are all lower, with the pan-European Stoxx 600 index shedding 1.5%.
Victoria Scholar, head of investment at interactive investor, explains:
“Risk-off sentiment and a sell-off on Wall Street are sending shockwaves across global markets with main European bourses shedding more than 1% each on the final trading session of the week.
The FTSE 100 is flirting with critical support at 7,500 with a break below potentially paving the way for further declines. Just a handful of stocks in the UK basket are trading in the green while the miners such as BHP Group, Rio Tinto and Anglo American languish at the bottom.”
ING: UK retail “shocker” unlikely to throw the Bank of England off course
December’s retail sales ‘shocker’ won’t stop the Bank of England raising interest rates next month, predicts ING’s Developed Markets Economist James Smith.
Smith points out that retail sales were strong in the autumn (probably because some people started their Christmas shopping early).
“The latest UK retail sales figures for December don’t make for pleasant viewing. Sales fell by almost 4% compared to November, even after fuel sales are excluded (which themselves declined due to increased work-from-home).
“But as is often true with the retail data, some perspective is required. Some of this fall is undoubtedly linked to Omicron, given footfall appeared to have been a little lower in the run-up to Christmas. But a lot of this also looks like a pullback after an unusually strong November and Black Friday. Strong October sales also hinted that consumers did more of their Christmas shopping early relative to past years, given news reports of possible shortages, though this is admittedly harder to prove.
So, an interest rate rise (from 0.25% to 0.5%) in February seems likely, Smith adds:
All in, these latest figures are unlikely to move the needle much for the Bank of England, which looks poised to hike rates again in February. But prospects for a more gradual consumer story are another reason to suspect subsequent rate rises will be more gradual. We expect two rate hikes this year.”
The recovery is slowing sharply, warns former Bank of England policymaker Andrew Sentance:
Retail sales show impact of inflation
Today’s retail sales report also shows the impact of inflation on household budgets.
While sales volumes tumbled by 3.7% in December, consumers only spent 3.1% less than in November.
On an annual basis, people bought 0.9% less stuff than in December 2020, but actually spent 5.7% more than a year before, demonstrating the impact of inflation on consumers.
Oliver Vernon-Harcourt, head of retail at Deloitte, says retailers will be disappointed by December’s sales figures.
Rising inflation will weigh on retail spending this year, he adds:
“Continued rising inflation will put pressure on both consumer spending and confidence over the coming months. Rising household costs will also prompt some consumers to tighten purse strings, at a time when 72% of UK consumers are already concerned that prices for everyday purchases will go up.
Despite the adaptability shown by the industry throughout the pandemic, retailers will have to navigate not only inflation headwinds, but also manage continued supply chain disruptions and staff shortages.”
Unhappy Christmas suggests economy shrank in December
The huge 3.7% m/m fall in retail sales in December was much bigger than economists expected.
It strongly suggests the UK economy shrank last month, amid the surge in Omicron cases and Plan B restrictions, just after reaching its pre-pandemic levels again in November.
Bethany Beckett of Capital Economics says GDP could have fallen by 0.5% during December, during “a very unhappy Christmas for retailers”.
With encouraging signs that the Omicron outbreak may have turned a corner and the government’s ‘Plan B’ restrictions due to be lifted next week, retail sales may recoup a bit of this fall in January and probably all of it in February and March.
That said, with the UK’s cost of living crisis looming, we expect a weakening in the consumer recovery to dampen retail sales further ahead. For the Bank of England, though, it’s about high inflation not weak activity. So we still think that interest rates will be raised to 0.50% in early February.
Suren Thiru, head of economics at the British Chambers of Commerce, agrees that there could have been a ‘modest fall’ in GDP last month.
Non-food store sales fell 7.1%
This chart shows how ‘non-food stores’ across Britain saw a sharp drop in sales, down 7.1% on average:
They’re still 2.3% below their pre-coronavirus levels, while overall retail sales are 2.6% higher than in February 2020.
Retail sales in Great Britain fell 3.7% in December
Just in: Retail sales in Great Britain tumbled last month as the introduction of Covid-19 restrictions hit spending over the crucial Christmas period.
Retail sales volumes fell by 3.7% in December 2021, the Office for National Statistics reports.
Spending fell as shoppers kept away from high streets and shopping centres following the discovery of the Omicron variant, and following a rise in November as some people finished their Christmas shopping early.
Sales at non-food stores, such as department stores, clothes outlets and household goods sellers were hit hard, the ONS says:
Clothing stores and department stores reported a fall of 8.0% and 6.3% over the month and were 7.2% and 10.6% below levels in February 2020.
The volume of household goods stores sales fell by 3.2% in December and were 1.4% below their levels in February 2020.
Some retailers said the the Omicron variant, which increased rapidly during December, had hit shopper visits, the ONS reports.
Sales of petrol and diesel fell by 4.7%, as people were asked to work from home if they could.
Food store sales volumes fell by 1.0% in December 2021; but despite that drop, volumes were 2.0% above levels in February 2020, as people shunned hospitality venues and spent more time at home.
Introduction: Consumer confidence hit by cost of living crisis
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK consumer confidence has slumped to its lowest level in almost a year, as people grow more fearful of inflation, fuel bills and interest rate rises.
A closely watched gauge of consumer sentiment, from research company GfK, fell by four points to minus 19 in January, the weakest since last February during the last lockdown.
People are less optimistic about their own financial position, and the wider economic climate, due to rising bills and likely interest rate rises.
Joe Staton, Client Strategy Director, GfK warns that the squeeze will last for months.
“The UK’s financial pulse weakened further this January driven by concerns over personal finances and the general economic situation.
“All five measures are down in January and the picture on the economy is especially bad with an eight-point decrease in how we see the past year and the year to come. Despite some good news about the easing of Covid restrictions, consumers are clearly bracing themselves for surging inflation, rising fuel bills and the prospect of interest rate rises.
“The four-point fall in the major purchase index certainly suggests people are ready to tighten their belts. Will the mood brighten when the latest wave of the pandemic subsides and Covid numbers improve? It seems unlikely because it’s the cost-of-living squeeze that’s worrying us now and this will affect us for months to come.”
Also coming up today
Stock markets are edgy, after Netflix warned last night that its subscriber growth would slow substantially in the current quarter. This downbeat forecast sent its share plunging 20% in afterhours trading:
European markets are set to fall by between 1% and 2%:
Bank of England policymaker Catherine Mann will give a speech on inflation, while the final day of ‘virtual Davos’ will hear from Australia’s PM Scott Morrison, ECB chief Christine Lagarde, IMF chief Kristalina Georgieva, and US treasury secretary Janet Yellen.
- World Economic Forum’s Davos Agenda
- 7am GMT: UK retail sales for December
- 1pm GMT: Bank of England policy maker Catherine L Mann gives a speech ‘On returning inflation back to target’
- 3pm GMT: Eurozone consumer confidence