U.K. Retail Sales Beat Forecasts With Record Christmas Increase

U.K. retail sales rose more than economists forecast in December, led by a surge at department stores and smaller shops during the key Christmas season.

Sales including fuel increased 2.6 percent from November, the Office for National Statistics said today in London. That’s the strongest December since records began in 1996. The median forecast of 22 economists in a Bloomberg News survey was for a

0.3 percent gain last month. Department stores posted a record

8.7 percent increase in sales. The pound strengthened.

The data indicates some strength in consumer spending at the end of the fourth quarter after retail sales fell 0.9 percent in October and barely grew in November. The figures may counter some pessimism about the economy after industrial production stagnated in November and construction fell. Gross domestic product rose 0.8 percent in the third quarter.

“This is a catch-up after a couple of disappointing months,” said Michael Saunders, an economist at Citigroup Inc. in London. “The economy is picking up quite strongly and –- even though monthly figures may be volatile -- trends in retail sales are also likely to strengthen further in 2014.”

The monthly increase in retail sales in December matched a previous record in February 2010, according to the ONS.

The data contrasts with Christmas updates from some of Britain’s biggest retailers, including Tesco Plc and Marks & Spencer Group Plc, which reported reduced sales. In the fourth quarter, sales rose just 0.4 percent, the statistics office said.

‘Helpful Outcome’

“This is not about to propel GDP up to above 1 percent in the fourth quarter,” said Alan Clarke, an economist at Scotiabank in London. “Nonetheless it is a helpful outcome in the face of the dive in construction.”

From a year earlier, retail sales rose 5.3 percent in December, the most in nine years. Excluding auto fuel, retail sales increased 2.8 percent in December from November and were up 6.1 percent compared with a year earlier.

The pound rose 0.5 percent against the dollar and was at $1.6438 as of 11:25 a.m. London time.

On a non-seasonally adjusted basis, sales at large stores rose 2.6 percent from a year earlier, with smaller stores -- companies with less than 100 employees -- up 8.1 percent.

‘Cautious Outlook’

While Britain’s economy is strengthening and inflation is cooling, wage growth remains subdued, keeping a squeeze on consumers. J Sainsbury Plc, the U.K.’s third-largest supermarket chain, lowered its full-year sales outlook this month amid what it expects to be a tough end to the financial year.

“Given continued pressure on disposable incomes, we remain cautious about the outlook,” Marks & Spencer said in a trading update on Jan. 9.

The ONS report showed that the retail sales deflator, a measure of changes in shop prices, was 0.5 percent in December. The deflator on food was 2.3 percent.

Internet sales accounted for 11.8 percent of all retail sales in December, up from 10.9 percent a year earlier, the statistics office said. Non-store retailing, which includes online shopping, rose 4.8 percent on the month and was up almost 22 percent from a year ago.

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