Christmas shopping off to slow start

A lack of spending power for financially stretched consumers means Britain’s Christmas shopping season has got off to a slow start, the CBI said.

Reports from high street shops and stores showed that sales in the first two weeks of December were weaker than retailers had been predicting.

The monthly check by the employers’ organisation showed 36 per cent of firms reporting sales up on the same period of 2011, while 17 per cent said they were down. The balance of +19 percentage points was weaker and failed to match the +25 points expected in the November distributive trades survey and was below the balances of +30 and +33 points in the previous two months.

Anna Leach, CBI head of economic analysis, said: “This month’s survey hasn’t quite provided the Christmas cheer that retailers anticipated, with sales growth falling short of expectations.

“Clearly, weak spending power and uncertainty over the economic outlook are likely to remain key risks to the retail sector in 2013.”

The CBI said a majority of retailers polled said business was below average for the time of year. There was a belief that trading conditions would remain tough in January. A balance of -10 percentage points of firms said sales were poor for a pre-Christmas period. A balance of +10 points said they expected activity in January 2013 to be better than in January 2012.

Judith McKenna, the chair of the CBI’s distributive trades panel and chief operating officer of Asda, said: “This latest data covers the period to the middle of December and we should take heart that sales on the high street have held up during the early crucial Christmas shopping period. However, on-going economic fragility is maintaining the squeeze on household incomes, and it’s notable that sales are below par for the festive season.

“So while families are making their budget stretch as far as possible for the Christmas season, the Christmas spending spirit can only go so far. In reality, sales growth has actually slowed since the autumn and retailers are expecting a further slowdown in the new year.”

Supermarkets and clothing and footwear stores had the most to cheer about in the first two weeks of December, according to the survey, but consumer wariness over spending on big-ticket items meant another difficult month for companies selling durable household goods.

After the strong 1 per cent expansion in national output in the third quarter of 2012, analysts are expecting a slight contraction in gross domestic product in the final three months of the year, and said the softness of retail spending shown up by the CBI report was consistent with a still struggling economy.

Howard Archer, chief UK economist for IHS Global Insight, said: “The CBI distributive trends survey for December was weaker than expected, fuelling concerns that retail sales are lacklustre so far over the vital Christmas period. This is particularly worrying news for retailers and it does not do much for overall growth hopes for the fourth quarter.”

Martin Beck, UK economist at Capital Economics, said the fact that the CBI survey was conducted between 29 November and 12 December meant there was still hope for retailers of a pick-up in spending in the last days before Christmas.

“But with pay growth weak and real earnings continuing to decline, household budgets can only stretch so far. Whatever happens at Christmas, we doubt that a decent revival in household spending will be in prospect for some time yet.”