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Britons' festive fun undercut by faster food-price inflation

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Britain's clothing chains and department stores are taking a hit as faster food-price inflation eats into the amount consumers have for non-essential spending.

[LONDON] Britain's clothing chains and department stores are taking a hit as faster food-price inflation eats into the amount consumers have for non-essential spending.

Industry figures published on Tuesday showed in-store sales of non-food items fell an annual 4.4 per cent in the fourth quarter. That's the steepest since records began five years ago and a blow to stores hoping for Christmas cheer after a tough 2017. Growth in internet shopping also played a part, with online sales proving stronger in the period.

In December alone, overall retail sales rose a "meagre" 0.6 per cent on a like-for-like basis, according to the British Retail Consortium. Department-store owner Debenhams said last week that year-end sales fell and full-year profit will miss analyst expectations.

UK inflation accelerated to 3.1 per cent in November, the fastest in more than five years. Food prices rose 4 per cent, almost double the pace of workers' average earnings growth. As households spend more putting food on the table, that's hitting sales in other areas.

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Market voices on:

"Shoppers continued to see more of their spending power absorbed by essential items, including food, leaving less left over for buying Christmas gifts," said Helen Dickinson, chief executive of the BRC.

"That made this year's festive period all the more nail-biting for non-food retailers, many of whom offered deep discounts."

A separate report from Barclaycard showed that those discounts provided some support for sales, with consumer spending growing 4 per cent in December from a year earlier. But growth over the fourth quarter was weaker compared with the same period in 2016 as shoppers responded to faster price increases.

The UK's inflation surge is the result of the pound's decline after the vote to leave the European Union in 2016. Compounding the squeeze, wage growth has remained sluggish.

The Recruitment and Employment Confederation offered some glimmer of respite ahead, saying in its latest report that starting salaries for permanent jobs were rising "markedly". That was partly due to strong demand for staff and a sharp decline in availability of candidates.

"Caution continues to be the prevailing sentiment among Brits," said Paul Lockstone, managing director at Barclaycard.

"As we head into 2018, it will be interesting to see whether consumers rein in after Christmas in anticipation of future financial shocks."

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