The latest retail sales figures have highlighted changing consumer trends – with the Black Friday phenomenon making a big impact on UK consumer behaviour.
December’s retail sales, though 1.4% higher than 2016, showed a decline on November’s figures – leaving overall retail sales growth in 2017 at 1.9%, the lowest growth rate in four years.
Analysts say the figures show the traditional Christmas retail pick-up is happening a month earlier.
The poor figures saw the pound fall 0.2% against the dollar to $1.3873 and 0.3% against the euro to €1.1315.
As a result, the FTSE100 was up 0.3% at 7,723 – the UK biggest companies usually report earnings in dollars.
Retail shares suffered, however, with Kingfisher, Next, Marks & Spencer, Card Factory and Dixons Carphone all down.
‘Clicks and bricks’ fared better
Online sales continued to grow apace, with online retailing up 9.4% year on year in December.
However, there is some relief for hard-pressed high street chains. Online retailers with a high street presence – a ‘clicks and bricks’ strategy – fared better than those with a purely online strategy, according to Richard Stone, chief executive of the Share Centre.
He said the impact of higher inflation and the decline in real wages was affecting consumers’ ability to spend more.
“Although employment remains at record levels, real wages have been falling following the increase in inflation after the EU referendum, and as a result consumers simply have less ability to grow their spending,” he said.
“This also demonstrates that to drive UK GDP growth, a greater contribution is going to have to come from manufacturing and exporting rather than from consumer-led spending.”
Business services firm EY agreed that consumer confidence was fragile.
“Consumer confidence fell to a four-year low in December, with consumers concerned not only about the squeeze on their purchasing power but also the economic situation and outlook,” said Howard Archer, chief economic advisor to the EY ITEM Club.
“Consumers were also seemingly unsettled by the interest rate hike in November.”
He said the persistent squeeze on consumers from higher inflation and weak earnings growth was highlighted by the latest statistics from the Office for National Statistics (ONS).
The ONS figures showed real regular earnings were down 0.4% year on year in the three months to October – the eighth successive decline.
Squeeze will ease
“The squeeze on consumers remains appreciable at the start of 2018, but it should progressively ease during the year due to inflation falling back significantly and pay gradually picking up,” added Archer.
EY believes inflation will fall back from 3.0% in December to roughly 2% by the end of 2018, largely due to the impact of sterling’s sharp fall dropping out of the figures.
The firm also expects earnings growth to pick up modestly as a consequence of recruitment challenges in some sectors and higher inflation fuelling some pay awards.
Archer said the December report of business conditions by the Bank of England’s regional agents indicated that a “significant” number of their contacts expected pay awards to rise modestly to a 2.5-3.5% range in 2018 from 2.0-3.0% in 2017.