Black Christmas on high street raises rate cut hopes
Thursday 21 January 1999
Shoppers were not fooled by retailers' attempts to raise prices in December ahead of the January sales. They held back leaving stores groups with too much stock which is now being heavily discounted.
With minutes of the last meeting of the Bank of England's Monetary Policy Committee showing that eight of nine members voted for lower rates this month, yesterday's figures boosted the odds on another interest-rate cut next month.
Official retail figures show that sales in December were almost 1 per cent lower than November. The fall surprised City experts, who had been expecting an increase. The value of sales in the year to December showed the weakest rise, at 1.8 per cent, since records began in 1987.
As retailers clamoured for more cuts in interest rates, there was a fresh wave of downbeat statements from stores groups. Moss Bros, the menswear retailer, warned of an 18 per cent profit collapse, while Alldays, the convenience store operator, and Thorntons, the confectionery retailer, also issued gloomy statements.
They followed profit alerts from Marks & Spencer and Body Shop, indicating that Britain's consumers won the test of nerve on prices.
The dismal performance probably reflected the impact of pre-Christmas price hikes, analysts said. But the underlying growth in high-street sales also weakened. In the three months to December, the volume of sales was down 0.2 per cent, the lowest since February 1995.
Weakness was spread over all sectors, but department stores were among the hardest hit, with volumes down 1 per cent in the three months to December. Only a few categories, such as electronic goods, bucked the trend.
Although, as usual, the value of sales in December was higher than other months, the 36 per cent uplift this Christmas season was the lowest of the 1990s.
Michael Saunders of Salomon Smith Barney said: "Retailers shot themselves in the foot in December, but the whole quarter was slow anyway."
Ken Wattret, UK economist at Paribas, said the retail sales total implied that GDP figures due tomorrow could show a fall in the final quarter. "If consumers don't spend at Christmas, when will they?"
Taken with the minutes of the January MPC meeting, the subdued retail sales confirmed expectations that the February meeting will bring another downward move in rates.
Seven members of the committee voted for the quarter-point cut in January. One, DeAnne Julius, voted for a half-point move. Ian Plenderleith, one of the internal Bank members, voted for no change on the grounds that it would do no harm to wait and see what effect previous cuts were having.
The MPC expressed concern about the international economic environment, saying the turbulence posed the risk of even slower growth in the UK. The meeting took place before the latest Brazilian crisis. The minutes end: "The prospects for global activity and prices were as bad as expected a month ago, and the risks were clearly on the downside."
Members also felt the jobs market had reached a turning point. "There were some signs of an easing of labour market pressures," the minutes said.
The MPC agreed to revisit its earlier assumption about earnings growth ahead of the new forecast being prepared for next month's Inflation Report. Pay settlements had been flat for many months, they noted.
David Hillier at Barclays Capital said: "This week's fourth-quarter GDP figure is the key in terms of the February rate decision." Today offers more evidence with the British Chambers of Commerce survey.
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