High street hit by worst December sales figures in 40 years

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The Independent Online

The high street suffered its worst December since at least 1961, threatening to make it officially one of the worst Christmases for retailers in living memory.

The high street suffered its worst December since at least 1961, threatening to make it officially one of the worst Christmases for retailers in living memory.

The raw data for the value of sales rose by 17 per cent - the most meagre increase since modern records began 43 years ago, the Office for National Statistics said yesterday. The seasonally adjusted volume of sales - stripping out the Christmas volatility - slumped by 1.0 per cent last month.

Every sector of the high street suffered a fall with only internet-only retailers showing strong growth on the month. The weak figures confirm anecdotal evidence of a lacklustre December although analysts forecast there was the possobility of a bounce-back in January.

The figures were published just hours after Mervyn King, the Governor of the Bank of England, said the Bank would not take a judgement on Christmas and new year trading until it gets figures for January - after its next meeting on interest rates.

The Bank confirmed Mr King had seen yesterday's figure when he wrote his speech, leading analysts to say it was unlikely to trigger a rate cut on 9 February.

"Does that mean we should ignore today's data?" John Butler, a UK economist at HSBC, asked. "No - the magnitude of the fall raises the risk that the drop could be genuine.

"The Governor seems to fear that the current negative sentiment becomes a self-fulfilling prophecy. The biggest fear for the central bank seems to be fear itself."

Analysts said the weakness had boosted the chances of a rate cut in April or May - a view wholly endorsed by the retail industry.

Kevin Hawkins, the head of the British Retail Consortium, said: "Consumer confidence is fragile and evidently people are cautious about spending. Dodging the issue of cutting interest rates to ease consumer blues is no longer viable."

The ONS figures showed the fall was led by general and department stores, which slumped by 2.4 per cent. This echoed profits warnings from Woolworths, GUS, and House of Fraser.

Clothing sales dropped 1.7 per cent while household goods stores - key indicators such as furniture and entertainment equipment - fell 1.2 per cent.

The non-store retailing and repair category, which includes internet sales, rose a strong 1 per cent in December.

There was evidence shops had not cut prices by as much as had been expected given the huge publicity over so-called "flash" sales at shops such as Marks & Spencer.

The deflator - a measure of price cuts on a year ago - was 1.3 per cent compared with a steeper fall of 1.5 per cent in November. Vicky Redwood, at Capital Economics consultancy, said: "It raises the chances that the pick-up in inflation will be reversed in coming months as retailers are forced to cut prices to support sales."

December's fall meant the last quarter of the year posted growth of just 0.3 per cent, down from 1 per cent in the third quarter.

It means the first estimate of overall fourth-quarter economic growth could come in weaker than the 0.6 per cent the markets has been expecting. Economists said the scale of the fall would revive the argument over the link between house prices and consumer spending, which the Bank said recently had broken down.

Fresh figures from the major high street banks yesterday showed mortgage lending posted its first increase for five months in December. Underlying mortgage lending rose by £5.2bn compared with November's £4.0bn.

"Mortgage lending growth bounced back in December," George Johns, at Barclays Capital, said. "Housing market activity and consumer lending are not about to fall back as dramatically as some have suggested - and certainly not by enough to warrant rate cuts." The increase in borrowing will add to speculation that househunters have returned to the market in droves in the new year.

Primelocation, a property website, said the number of "hits" on its site between 4 and 18 January had jumped by 35 per cent compared with its busiest period of 2004.

Ian Springett, the chief executive, said: "This substantial rise in activity on our site bodes extremely well for both the sales and lettings markets."