Winter weather causes sharp drop in UK retail sales

19th February 2010

UK retail sales plunged by 1.8% between December and January, the sharpest drop in 18 months, official figures have shown.

Extreme winter weather is said to be partly to blame for the fall, which was more than three times faster than experts had predicted.

The drop has also been attributed to the inclusion of petrol in the official figures for the first time, with many motorists staying at home during snowy periods.

The data, released by the Office for National Statistics, highlights the growing concern about the UK economy's ability to fully recover from the recession.

Despite sales by value being up 0.9% from January 2009, fuel sales and food sales slipped by 11.1% and 2.4% respectively.

Discounting the massive drop in fuel sales, overall retails sales fell by 1.2%. Although the ONS said the cold weather had boosted sales of clothing.

The rise in VAT is also thought to have hurt the January figures, with a rush of shoppers in December snapping up big ticket items to take advantage of the lower 15% rate before it returned to 17.5% on January 1^st.

"The drop in retail sales in January comes as no surprise as consumers reined in spending after Christmas. However, the magnitude was far greater than commentators expected," said Richard Lowe, Head of Retail and Wholesale for Barclays.

"Treacherous weather conditions deterred shoppers from the high street for part of January, although the official data suggest that even internet retailers could not escape the Christmas hangover. In contrast, retailers of clothing saw sales volumes surge, as prices fell and appetite remained strong for winter lines.

"The post-Christmas sales meant that a number of retailers postponed the reinstating of VAT at 17.5 per cent and focused on seasonal discounts, although it remains to be seen to what extent the rise will dampen demand going forward. There is widespread speculation amongst businesses that VAT will rise further later in the year following the general election, and retailers are already factoring this into their budgets."

The data rounds off a rotten week for the UK economy, following on from news that inflation had accelerated to 3.5%, that the government had borrowed another £4.3bn in January and there had been an unexpected rise in Jobseeker's Allowance claimants.

Claims Financial