Traders hit by poor Christmas sales

Firmer high street prices in the build-up to Christmas hit sales volumes and cast doubts over the strength of the economic recovery today.

Sales volumes grew by just 0.3 per cent in December - far worse than expected - with year-on-year volume growth hitting an 11-year low of 2.1 per cent, the Office for National Statistics (ONS) said.

But values were up 3.6 per cent year-on-year - the second highest for the month since 2001 - suggesting far less discounting on the high street as retailers held prices at the expense of volumes.

Figures next week are expected to confirm that the beleaguered UK economy finally left recession in the last quarter of 2009, but forecasters are braced for weaker growth following the retail data.

ING Bank's James Knightley said: "We are likely to see expectations for next week's growth figure decline - the market had been looking for a 0.4 per cent quarter-on-quarter rise, but it could come in closer to 0.3 per cent."

Many stores were forced to cut prices before Christmas a year earlier to tempt hard-pressed shoppers at the height of the recession.

Retailers were under less pressure to cut this year, given record low interest rates and gradually increasing confidence. The weaker pound added to import costs this year.

The disappointing figures came after more buoyant survey data from the British Retail Consortium and a host of upbeat trading statements from big high street names including John Lewis and Marks & Spencer.

Barclays Capital economist Simon Hayes said the ONS figures were "perplexing" following the positive noises, but added: "Part of the explanation might be that retailers' commentary tends to focus on sales values rather than volumes."

Experts added that there was very little evidence of consumers bringing forward purchases to beat January's rise in VAT back to 17.5 per cent.

Capital Economics' Vicky Redwood said retail sales grew at a slower rate in the final three months of last year than the third quarter.

She said: "(The figures) are clearly a timely reminder that, with a fiscal squeeze looming and renewed falls in house prices and employment potentially on the cards, consumers shouldn't be relied on to drive a strong economic recovery."

The big winners from the figures were food stores and online retailers. Grocers saw volumes up 2.8 per cent year-on-year, while non-store retailing and repair - mainly internet shopping sites - lifted sales volumes by 9.4 per cent.

Ben Read, managing economist with the Centre for Economics and Business Research, said: "This Christmas it appears that shoppers were prepared to splash out a little more on their festive feast and glutton, whilst hunting for the best bargain presents online."

Among non-food stores, volumes rose 0.1 per cent on the previous month and 0.7 per cent on 12 months earlier. Department store volumes were down 1 per cent on November, and up 1.5 per cent on last year.