Press release

22 Jan 2021 London, GB

UK retail sales saw small rebound in December as economy still affected by restrictions – EY ITEM Club comments

UK retail sales saw small rebound in December as economy still affected by restrictions – EY ITEM Club comments

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Related topics Growth COVID-19
  • Retail sales volumes edged up a weaker-than-expected 0.3% month-on-month in December after a temporary opening up of non-essential retailers following November’s lockdown
  • December’s rise followed a 4.1% decline in retail sales volumes in November, which had been the first for seven months and was caused by the English lockdown that lasted from 5 November to the start of December
  • Retail sales volumes fell 0.4% quarter-on-quarter (q/q) over Q4, suggesting that consumer spending was of little help to the economy amid the lockdown and other tight restrictions. Consumer spending on services will clearly have been limited in Q4 by the closure of most of the hospitality and leisure sector during much of the period
  • The slight fall in retail sales over Q4 is consistent with the EY ITEM Club’s view that the economy likely stagnated over the quarter, just avoiding contraction
  • In the near term, consumer spending will continue to be affected by the closure of non-essential retailers and large parts of the hospitality and leisure sectors
  • With lockdowns across the UK back in place and set to last until at least mid-February, the EY ITEM Club expects the economy will experience a clear contraction in Q1 2021 – possibly in the region of 3-4% q/q. Growth in Q4 2020 is likely to have been flat across the quarter, thanks to a surprisingly limited contraction in November 
  • After Q1, the EY ITEM Club expects the economy to benefit progressively through 2021 from the roll-out of COVID-19 vaccines. Consumers look well-placed to play a key role in a pick-up in the UK economy from the second quarter given the recent high savings ratios, although much will depend on unemployment numbers. After an extended period of weakness, business investment is expected to gain momentum over the course of the year as companies grow more confident in the economy
  •  However, the EY ITEM Club’s December forecast of 6.2% GDP growth for 2021 is now clearly too optimistic: 5.0% growth may well now be the limit for 2021

Howard Archer, chief economic advisor to the EY ITEM Club, says: 

“Retail sales volumes rose a modest 0.3% month-on-month (m/m) in December as they only gained a limited amount from a temporary opening up of non-essential retailers after November’s lockdown closures.

“This was a much smaller rebound than had been hoped for after retail sales had fallen 4.1% in November: the consensus had been for a 1.2% m/m rise in December.

“While November’s 4.1% fall in retail sales had been the first decline in seven months, it had been a pretty resilient performance given the closure of non-essential retailers. Notably, retail sales volumes had fallen 18.2% m/m in April following the 23 March lockdown.

“The year-on-year increase in retail sales volumes rose to 2.9% in December from 2.1% in November. Retail sales volumes in December were 2.7% above where they were in February before they were affected by the first lockdown.

“Retail sales volumes fell 0.4% q/q over the fourth quarter, which ties in with the EY ITEM Club’s view that the economy likely stagnated.

“The ONS reported that in December clothing sales volumes rose 21.5% m/m after falling 19.6% in November.

“Sales in food stores fell back 3.4% in December after growing 2.8% in November. 

“Online sales fell back 6.2% m/m in December after rising in November when they were lifted by the closure of non-essential retailers’ physical stores. Nevertheless, online sales markedly increased their share of total retail sales through 2020 due to the periodic closing of non-essential retailers and other restrictions. The indication is that the restrictions on non-essential retailers have given extra impetus to an already rising underlying trend for online sales. 

“The annual retail sales deflator fell 1.0% year-on-year in December, with fuel prices down 7.8% year-on-year. Excluding fuel prices, the annual retail sales deflator was down 0.6% year-on-year in December.”