U.K. retail sales fall in December, consumer spending to support economic growth in 2017

U.K.’s retail sales volumes dropped in December. On a sequential basis, retail sales volume fell 1.9 percent after a downwardly revised 0.1 percent decline in November. Consensus expectations were for a rise of 0.2 percent. According to a Lloyds Bank research report, some decline was anticipated in today’s report, with a monthly fall still in line with a rebound in annual growth in activity.

The scale of decline, however, was sharper than projected, with downside risks emphasized by the bigger-than-expected acceleration in inflation earlier in the week, suggesting subdued volume growth. In spite of the slump, the underlying quarterly pace of growth continues to be at 1.2 percent. However, this is lower than 2 percent last month, with the annual growth rate falling to 4.3 percent year-on-year from 5.7 percent year-on-year previously, the most subdued since September.

The data released today gives additional colour on official activity trends in the fourth quarter, although the mechanical print across in confined just to output in a part of the distribution sector, comprising about 5 percent of the economy, noted Lloyds Bank.

In 2017, the obstacle to strong ongoing consumer-led growth is expected to increase as rising price pressure starts to sap purchasing power. The rate of high street price inflation became strongly positive in December, accelerating to 0.9 percent year-on-year from November’s 0.1 percent year-on-year, the highest since December 2013.

“While the coming months are set to reflect the further upcreep in costs from sterling’s substantial post-referendum depreciation, consumer spending is still likely to be the mainstay of UK growth over the year ahead”, added Lloyds Bank.