British Retail Sales Report

By William Schomberg
LONDON (Reuters) – British retail sales rose by a weaker-than-expected 0.2% in November, according to official data. This suggests consumers have adjusted to the new government's first budget, though it highlights the sluggish growth in the economy.

A Reuters poll had anticipated a monthly increase of 0.5% in sales volumes following a 0.7% drop in October, coinciding with Finance Minister Rachel Reeves' tax and spending plan.

This increase marks the first rise since August. However, over the three months leading to November, volumes registered a mere 0.3% increase, the lowest since June, according to the Office for National Statistics (ONS).

Earlier data indicated that the UK economy contracted in September and October, marking the first consecutive shrinkage since the COVID-19 pandemic began. Analysts attribute much of this slowdown to concerns surrounding Reeves' budget from October 30, which imposed tax increases mainly on employers, not consumers.

Surveys indicated a negative impact on companies’ hiring plans since the announcement of £25 billion ($31.3 billion) in higher social security contributions for businesses.

On Thursday, the Bank of England announced an expectation for zero growth in the economy during the last quarter of 2024. Despite this, it refrained from cutting interest rates due to persistent inflationary pressures.

Alex Kerr, an economist with Capital Economics, noted, “Overall, against a backdrop of recent weak activity data, today’s release could have been worse. As real incomes continue to grow and consumer confidence improves next year, we believe the retail sector will boost acceleration in consumer spending growth.”

Following the data release, Sterling remained relatively unchanged against the U.S. dollar.

For the first time in three months, sales in food stores saw a rise, according to the ONS. Major supermarket chains like Tesco and Sainsbury's predict strong sales during the Christmas season.

Conversely, clothing stores faced challenges, experiencing a 2.6% volume drop from October. Sportswear and fashion retailers, including JD Sports and Frasers, as well as discounter Poundland, have expressed concerns about their outlook. On Wednesday, footwear retailer Shoe Zone issued a profit warning due to “very challenging trading conditions” in early December.

The ONS adjusted its November figures to reflect that the Black Friday discounting season largely fell outside its reporting period, although some retailers noted sales began earlier this year. Uniquely, school half-term holidays in England and Wales were in November this year, not October, though this was not accounted for in the data.

($1 = 0.7999 pounds)