UK Retailers Got Christmas Boost Even as Inflation Hit Volumes

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(Bloomberg) — UK retailers saw an uplift in sales in December as shoppers braved rail strikes and cold weather to buy Christmas gifts, but soaring inflation meant consumers had to pay more for fewer items.

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Retail sales rose 6.5% last month compared with a year earlier, driven by food sales which grew almost 8%, according to data from the British Retail Consortium and KPMG. Still, the rate of inflation outpaced the increase in sales, meaning that volumes of goods sold actually fell in December for the ninth month in a row. 

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“The numbers for sales growth in December look healthy,” said Paul Martin, UK head of retail at KPMG. “This is largely due to goods costing more and masks the fact that the volume of goods that people are buying is significantly down on this time last year.”

Shoppers are finding it harder to maintain their standard of living as prices rise for basics like food, energy and fuel. Consumers spent a record £12 billion ($14 billion) on groceries in December due to higher prices even as sales by volume fell 1%, Kantar data showed last week. 

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UK consumers chose to go out and spend during the Christmas season despite rail strikes and a cold snap. Foot traffic rose 15% in December compared with a year earlier in the country’s best festive season since the start of the pandemic. 

A number of retailers have already updated investors on their Christmas performances, with many offering reasons to be optimistic. Next Plc raised its profit forecast after full-price sales unexpectedly grew in the last weeks of the year. Budget retailer B&M European Value Retail SA is set to pay a special dividend thanks to growing sales.

Further updates are due this week from supermarket chains J Sainsbury Plc and Tesco Plc, as well as food and clothing retailer Marks & Spencer Group Plc and fast-fashion brand Asos Plc. 

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Energy-saving household appliances like air fryers sold well in December along with winter apparel and boots, as consumers sought affordable ways to stay warm. Clothing and beauty items were purchased as gifts as shoppers shunned big-ticket technology purchases.

Still, many retailers are being cautious, as UK consumers battle higher mortgage costs and energy prices as well as credit card bills from their holiday spending. The BRC warned that further price rises from retailers will be “inevitable” from April once government support measures for energy costs expire.

“Cost pressures show little immediate signs of waning, and consumer spending will be further constrained by increasing living costs,” said Helen Dickinson, the BRC’s chief executive officer.