British retail sales fell by more than forecast in November, reversing some of the previous months' surprisingly hefty gains, as consumers cut back spending on

computers, telecommunication products, watches and jewellery, Office for National Statistics said on Thursday.


Strongest 3-months on previous 3-months increase in retail sales volumes since August 2010



Today's official UK retail sales figures confirm that November was a bad month for retailers and will raise concerns that spending will be soft over the crucial festive period.

What's more, the drop in sales volumes may have been greater had retailers not resorted to another month of discounting. Granted, consumers might just be putting off their Christmas shopping until the last minute. But anecdotal evidence from retailers and recent surveys suggesting that shopper numbers are still down on their levels a year ago indicate that such a surge has not come through yet.

Moreover, a splurge by consumers in the final weeks before Christmas will only mean that retail spending in early 2012 is even weaker than currently seems likely.


It is the Christmas period that is particularly vital for most retailers and the 0.4% drop in sales volumes in November indicates that they are having their work cut out to get pressurized and worried consumers to spend. Data this week has highlighted the current still serious squeeze on consumers' purchasing power with consumer price inflation still up at 4.8% in November and annual wage growth at 2.0% in October.

Sluggish sales occurred in November even though the evidence points to retailers engaging in increased discounting and promotions to try to encourage consumers to spend. Significantly, the year-on-year increase in the retail sales deflator retreated to an 11-month low in November.

It may be that a substantial number of consumers are delaying their Christmas purchases in the belief/hope that struggling retailers will increasingly engage in discounting and promotions as the Big Day draws ever nearer.


To be honest, it was in line with expectations. My reading of the survey evidence prior to the release was it could have even worse. It's all of a piece which suggests that consumers are obviously cutting back to some extent, but I do wonder whether, one month ahead of Christmas, with household finances under pressure, they're maybe holding back before a splurge in December. You're not going to get two strong months ahead of Christmas, you might get one and November wasn't it.

The simple fact is, we're seeing an increasing amount of discounting on the high street, sales seem to have become a permanent feature of the landscape. That will contribute to holding down the price of some goods, which may well boost the volume figures. As we head into next year that may well become more evident in the price numbers itself.

For the moment at least, the BoE is well aware of the pressures under which consumers are operating. This is part of the rebalancing that policymakers have been calling for for some time. The BoE will probably react to economic weakness with a new round of QE.


Retail sales have posted a fairly firm run over the prior months, so it's not at all to surprising to see a retracement of volumes in November. Perhaps the rise in textile store sales was a little bit of an anomaly, given relatively warm weather, but in terms of the broad trend in sales volumes, it still looks a little bit firmer than had been the case earlier in the year.

But the outlook for the economy and consumer spending specifically remains uncertain. There are no big policy implications from this release and we still expect the MPC to sanction more QE next year.