Total sales volumes slumped 3.7 per cent in the final month of 2021 compared to November's 1 per cent rise when consumers snapped up early gifts for the festive season amid the supply chain crisis, according to the Office for National Statistics.
Heather Bovill, ONS deputy director for surveys and economic indicators, said despite strong pre-Christmas trading in November, retail sales fell across the board in December, with feedback from retailers suggesting Omicron impacted on footfall.
“As Plan B restrictions in England meant more people working from home, there was a notable fall for fuel sales,” Ms Bovill added.
"However, despite the fall in December, retail sales are still stronger than before the pandemic, with over a quarter of sales now made online.”
Fuel sales dropped 4.7 per cent in December on the previous month and were 6.6 per cent below the pre-pandemic level. Excluding fuel sales, the weakness was concentrated among non-food stores, which were down 7.1 per cent on the month, with sales at clothing ‘other’ stores especially low.
“December’s retail story was exactly the tale stores didn’t want told. Clothing stores, toy retailers, the sectors that traditionally benefit from Santa’s spree were particularly badly hit,” said Danni Hewson, AJ Bell Financial Analyst comments.
“Concern about supply issues led to a campaign to get people to spend early and sales were indeed up in October and November, but when you compare the last three months of the year with the previous three months it will make for difficult reading for retailers (Q4 0.2 per cent down on Q3).”
Economists said the scale of the hit bolstered their expectations that the world's fifth-biggest economy shrank last month, with Bethany Beckett, expecting a contraction of 0.5 per cent in December or possibly more.
Retail sales are expected to recoup the hit between January and March, with the government lifting its Covid restrictions next week as Omicron goes into retreat.
But "with the UK’s cost of living crisis looming, we expect a weakening in the consumer recovery to dampen retail sales further ahead," Ms Beckett said.
A rise in inflation to 5.4 per cent in December led by surging energy prices wiped out an increase in average earnings in the three months to November of 3.8 per cent compared with the same period of 2020.
Along with the prospect of higher interest rates and a tax hike in April, the appetite for consumers to keep on spending in 2022 will be tested.
As a result the Bank of England was still set to raise interest rates for a second time in two months in February, Ms Beckett said, increasing the rate to 0.5 per cent on February 3 from the 0.25 per cent level
But it was not all doom in December, with grocers more resilient as they scooped up customers who’d cancelled restaurant bookings for a festive blow out at home. However, sales were still 1 per cent down on November, although volumes were 2 per cent above levels in February 2020.
The proportion of retail sales online rose slightly to 26.6 per cent in December from 26.3 per cent in November, substantially higher than the 19.7 per cent seen in February 2020.
Although footfall on the high streets is rising again in the week ending January 15, it was only by a meagre 2 per cent, and followed three consecutive weeks of falls. Overall retail footfall remains 79% below 2019 levels, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“Even as plan B restrictions lift, the number of shoppers is unlikely to snap back to pre-pandemic times in high streets and city centre locations given that hybrid working is fast becoming the norm and household budgets are tightening,” Ms Streeter added.
“Already two thirds of adults are reporting the cost of living has increased over the past four weeks, and with more energy price rises on the way there are likely to be far fewer shoppers merrily splashing the cash in the months to come.”