British retail sales surged at their fastest annual rate in more than a decade last month, as US-style “Black Friday” discounts drove record sales growth at electrical and department stores.
Strong economic growth and a recent drop in the price of essentials such as food and fuel appears to be finally starting to translate into higher spending on big-ticket items by many households, after years of falls in disposable income.
Less than five months away from a national election, the news is likely to be welcomed by Britain's ruling Conservative party after repeated attacks from the Labour opposition over a fall in living standards since they were last in power in 2010.
The Office for National Statistics (ONS) said the volume of goods bought at British stores last month jumped by 6.4 per cent from November 2013. That was the biggest rise since May 2004, comfortably outstripping economists’ forecasts of a 4.4 per cent increase.
The ONS said the rise was driven by electrical and department stores, which saw the strongest annual rise in sales since records began over 25 years ago as they embraced “Black Friday” discounts more widely than before.
Retailers in the United States offer big discounts on the Friday after the annual Thanksgiving holiday, and in recent years the practice has become more prevalent in Britain, as stores try to kick-start pre-Christmas spending.
Dixons Carphone, Europe's second-largest consumer electronics retailer, said on Wednesday that "Black Friday" was now its second-busiest day of the year, and the strong sales helped it get cheaper prices from suppliers.
The mood in Britain stands in sharp contrast to that elsewhere in Europe, where the economy is barely growing. The data pushed up the pound against the dollar and the euro.
However, economists said some of November’s spending was probably money which in other years would have been spent closer to Christmas.
"While the robustness of these figures provided a boost to sterling today, they may just represent a shift in the timing of shopping patterns," said Investec economist Philip Shaw.
Bright Outlook?
That said, consumer spending has been robust throughout 2014, and many economists expect it to continue to support rapid economic growth next year.
A brighter economic outlook means households have been saving less and spending more, and there is support from a big slowdown in inflation and faster wage growth, which has outpaced price rises for two consecutive months.
“Real wage growth is likely to rise sharply, hence probably recreating the pre-crisis conditions of externally driven disinflation and buoyant consumer spending,” said Citi economist Michael Saunders
Annual consumer price inflation sank to a 12-year low of 1 per cent in November, and the measure used in the retail sales data fell by 2 per cent -- its biggest drop since August 2002.
This reflects cheaper food prices as supermarket chains such as Tesco and J. Sainsbury battle for business against discounters Aldi and Lidl, as well as a fall in the cost of a barrel of oil to its lowest in five years.
The ONS said food sales grew just 1.5 per cent on the year, in contrast to department stores which saw a 15.5 per cent rise.
Moreover, some economists fear consumers’ spending is rising faster than their financial situation is improving.
"The concern for the economy will be if the sense of increased financial wellbeing amongst households generates an unrealistic euphoria as we saw in the 2000s. A little financial caution this Christmas would not be a bad thing all round," said Dean Garrett, an economist at the University of Warwick.
Reuters
