High inflation reduces UK Retail Sales one more time

by Shaun Richards

It was only last Friday that we were looking at what was some strong news from the UK economy. Today is an example of a ying to that yang as we look at what is disappointing news.

Retail sales volumes fell by 3.7% in December 2021, following growth of 1.0% in November (revised down from 1.4%).

So not only was December very weak but November has been revised lower, in a type of double-whammy effect. The pattern for the last few months now looks like this.

Over the three months to December 2021 they fell by 0.2% when compared with the previous three months.

So over this period things look to have stagnated.

Inflation’s Impact

Back on the 29th of January 2015 I first formally established this view.

However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

Contrary to conventional economic theory low and indeed negative inflation boosted retail sales growth. Thus we would expect high inflation to weaken it.

We can start by looking at December itself where the amount of money spent or value was some 5.7% higher than last year. But volumes were some 0.9% lower so we get am estimated level of inflation, or in technical terms a deflator,of 6.6%. So more grist for the mill that high inflation reduces retail sales.

Our official statisticians have crunched the numbers for the last three months. First inflation.

Over the three months to December 2021, the value of sales was up 6.2% on the same period a year earlier, reflecting an annual retail sales implied price deflator of 5.8%.

So it was strong and volumes?

Compared with the same period a year earlier, sales volumes over the last three months fell by 0.9%

So they were not only weak they actually fell.

The inflation measure for this area has been rising all year and just to give an idea was 0% in March. So on this picture the volume pattern has weakened as it has picked up.

What was at play here?

It looks as though Covid fears did affect the high street.

Economic activity and social change analysis of data provided by Springboard reported that in the week to 18 December 2021 overall retail footfall was below “normal” expectations for this time of year, at 81% of the level seen in the equivalent week of 2019. Shopping centres retail footfall for this period was at its lowest relative level since the week beginning 25 July 2021, which may be because of more cautious behaviour caused by the emergence of the Omicron variant.

This is backed up by the weakest sector in December.

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Non-food stores sales volumes fell by 7.1% in December 2021, with falls in each of its sub-sectors (department stores, clothing stores, other non-food stores and household stores) following strong sales in November.

Added to this it looks as though something we had been expecting ( early Christmas shopping in an attempt to avoid supply chain problems), has been in play.

The sub-sector of other non-food stores, which includes retailers such as sports equipment, games and toy stores, reported a monthly fall in sales volumes of 8.9% in December 2021 but were 6.7% above their February 2020 levels.

I am not quite so sure how to report the next category. The factors above were no doubt in play but maybe pre pandemic we simply had too many clothes.

Clothing stores and department stores reported a fall of 8.0% and 6.3% over the month and were 7.2% and 10.6% below levels in February 2020.

A Voluntary Lockdown?

Whilst the UK did not formally lockdown there was a change in behaviour heading in that direction. There were country differences as Scotland and especially Wales tightened the rules more. But we get a signal from this I think.

Automotive fuel sales volumes fell by 4.7% in December and were 6.6% below pre-coronavirus levels of February 2020. This may be because of reduced travel following England’s move to Plan B in early December 2021, which asked people to work from home if they could.

So there was an impact from this which is backed up by this.

The Opinions and Lifestyle Survey covering the period 15 December 2021 to 2 January 2022 reported 60% of working adults travelling to work at some point in the past seven days compared with 72% in the previous period.

Also people did change their plans for their social lives.

The Coronavirus and social impacts release also reported a fall in those planning to meet up with friends or family in restaurants, pubs, bars or cafes over Christmas (29% for 15 December 2021 to 3 January 2022 compared with 34% for 1 to 12 December 2021) alongside a fall in those intending to visit a Christmas market (13%, 22% in the previous period), which may also have reduced travel.

Another factor in play here which is easy to forget now is the sense of fear that existed for a time.

Boris threw retail under a bus at the beginning of dec when he suggested possible lockdown for Xmas. Footfall feel hugely. Killed Xmas trade. ( Adele Bailey)

Also there were quite a few people isolating at times.

Online Sales

The numbers here will have been flattered by the extra isolations and voluntary lockdowns but even so it looks as  though higher numbers are here to stay.

Online spending values fell in December 2021 by 1.8% when compared with November 2021. Despite this fall, the proportion of online sales rose slightly to 26.6% in December 2021, from 26.3% in November.

Good for this sector but more sad news for the conventional high street which seems unable to catch a break.


We can take some comfort from the fact that UK retail sales are still one of the better performing areas of our economy. If we look back to December 2019 we see the index was at 99.7 as opposed to the 101.8 in December 2021. If we allow for the pandemic effect then we can estimate the underlying growth at 3% or better,

However,looking ahead there are problems. The first is the impact of my inflation theme which I expect to be chipping away at any growth in 2022. One way that will be in play is via the cost of living crisis which will hit harder in April when domestic energy bills look set to rise substantially and will cause some to consume less elsewhere. If we switch to incomes then in net terms they will be affected by the National Insurance rise due only a few days later. I was never much of a fan of it and now it looks an outright bad idea.

Let me finish with some especially sad news which is the death of Meatloaf. I am not sure that anyone has ever fitted more perfectly with the songs written for him. RIP and thank you.



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