UK retail sales plunge as Omicron keeps shoppers at home

[LONDON] UK retail sales plummeted in December as the spread of the Omicron variant kept shoppers at home.

The volume of goods sold in stores and online fell 3.7 per cent from November, the biggest drop since January 2021's lockdown, the Office for National Statistics said Friday (Jan 21).

Economists had expected an decrease of 0.6 per cent. Sales excluding auto fuel dropped 3.6 per cent.

The figures highlight the impact the new variant of coronavirus had on consumer spending.

While restrictions to control its spread have since been lifted, there are concerns higher inflation, interest rates and taxes will squeeze consumer incomes in 2022, reducing their spending power.

Even so, the sales data are likely to have little bearing on the Bank of England's (BOE) February decision, with economists increasingly certain officials will hike rates again in an effort to control inflation.

On Friday, Bloomberg Economics said it too expects a move on Feb 3, 3 months earlier than it previously predicted.

Market bets held steady after the data, with investors almost fully pricing in a 25 basis-point increase in the BOE benchmark rate to 0.5 per cent.

The decrease in sales last month was driven by a 7.1 per cent drop in sales at non-food stores, while fuel sales fell 4.7 per cent as home working reduced travel.

Shoppers also increasingly turned to the Internet, with the proportion of retail sales online rising to 26.6 per cent from 26.3 per cent in November. The figure was 19.7 per cent before the pandemic.

"The rapid emergence of the Omicron variant in December triggered a mass anxiety among shoppers, with the risk of missing out on Christmas plans outweighing the appeal of a trip to the shops," said Lynda Petherick, head of retail at Accenture UKI. "Despite the drop potentially being attributed to sales having been brought forward into October and November as shoppers locked in purchases early, this will be scant consolation for retailers. They will be bitterly disappointed that they couldn't capitalise on one of the most important months in the retail calendar."

The reading left sales down 0.2 per cent in the final quarter of 2021, despite a strong October and November. On an annual basis, sales volumes were 5.1 per cent higher than in 2020, the strongest growth 2004.

Still, more pain for retailers may lie ahead. A separate report Friday showed UK consumer confidence fell in January to depths last seen during the early months of lockdown in 2021 as cost-of-living crisis took over from the pandemic as a prime concern.

GfK's monthly consumer confidence index, which is closely followed by the BOE and the Treasury, dropped 4 points in January to -19, the lowest level since the country was in lockdown in February 2021.

"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," said Joe Staton, client strategy director at GfK.

The drop in confidence was driven by concerns over personal finances and the general economic situation. There was also a 4-point fall in the major-purchase index, which measures whether now is a good time to buy big ticket items. It is now at -10, which "suggests people are ready to tighten their belts," Staton said.

BLOOMBERG