Retail Sales Nose Dive in January

The cold snap in January looks to have had a huge impact on retail sales in January.  Figures have seen their sharpest fall in a year and a half, plummeting by 1.8% between December and January.

A drop in figures had been predicted as wintery conditions hit the nation, however the data from the Office of National Statistics (ONS), shows that the drop has been 3 times quicker than expected.  It is thought that the figures may be slightly offset by the inclusion of petrol sales for the first time, as people chose not to use their cars on the treacherous roads.

These figures are adding to already potent concerns regarding the state of the UK economic recovery.  Sales by value have risen however, they are 0.9% up on January 2009.

Fuel sales plunged by around 11.1% for the month.  With this impact striped out of the figures, retail sales would have fallen by a slightly smaller 1.6%. However, this figure would still have shown a drop more than twice as quickly as experts had envisaged.

Food sales fee by 2.4%, however clothing sales did grow slightly as the cold weather led to higher sales in warm winter clothes.

Potential ‘Double Dip’

Another variable potentially affecting the figure is the VAT increase.  January saw it rise back to 17.5% after the drop to 15%.  This is thought to have cause many sales to be done in December rather than January in order to avoid this rise.

These figures have been revealed after the UK inflation rate shot to 3.5%, adding to the government have had to borrow a further £4.3bn to cover an unexpected boom in the number of people claiming job seekers allowance.

"January's retail sales figures round off a pretty awful week for news on the UK economy," said Jonathan Loynes, chief European economist at Capital Economics.

"Of course, we knew the January sales figures would be bad after the VAT rise and bad weather.  But the drop is even worse than the retail surveys had suggested."

He also said he expects sales to bounce back, however spending growth may slow as people’s wages grow at a smaller rate than price rises.

"At the very least, these numbers provide a very weak platform for sales in the first quarter of this year and therefore raise the chances that the economy may succumb to a double-dip (recession)," Mr Loynes said.

A ‘double dip’ is a term used for an economy in recession return to growth, before contracting again shortly afterwards.

Posted at 09:00AM Feb 20, 2010 by Marc Stenton in UK Economy News  |  Comments[0]