December Retail Sales may lead to base rate cut

December was the fifth consecutive month of zero growth in Retail sales, which has increased the chances of a reduction in the Bank of England Base Rate. The Office of National Statistics (ONS) has revealed that sales reduced in December, in comparison to the previous three months, by 1%.

This reduction was caused by a reduction in spending on non-food items. Spending in food stores dipped by 1.3% in the Christmas period. This is the largest fall since December 2016.

Online sales rose marginally compared to November 2019, as a percentage of all retail sales, at 19% rather than 18.6%.

These figures have to be viewed in conjunction with the poor sales reported by some key high street names at a time when sales would be expected to be higher. Whilst it may have been expected that Christmas would be a way to recover ground lost over the challenging year, this ‘festive bounce’ didn’t materialise.

Coupled with the dismal reports from retailers, the ONS has also announced the Consumer Prices Index (CPI) measure of inflation fell to 1.3% in December. This was down on November’s figure of 1.5%, and again below the Bank of England’s 2% target.

Despite hopes that the clear outcome of the December election would rally the economy, this hasn’t happened. Current coverage of the Brexit trade talks with Europe are not positive, hence it is expected that the Bank of England may need to reduce interest rates to stimulate the economy when it meets later this month. A cut from 0.75% to 0.5% is expected.

Three of the members of the Bank of England’s Monetary Policy Committee have hinted at a rate cut in the last week. Mark Carney, the outgoing Bank of England Governor commented ‘If evidence builds that weakness in activity could persist, risk management considerations would favour a relatively prompt response.’

The Committee will meet at the end of January and then not again until March.

 

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