Figures from the UK Office of National Statistics (ONS) have indicated an exceptionally strong retail performance over Christmas. Some retailers may beg to differ.

Figures from the UK Office of National Statistics (ONS) have indicated an exceptionally strong retail performance over Christmas. Some retailers may beg to differ.

There was a collective exhalation from UK retailers last week when the ONS released the official sales figures for the Christmas period. Although whether this was a sigh of relief or one of exasperation depends on which retailers you ask. Economic stakeholders will certainly be pleased with the sales figures, which were overwhelmingly positive.

Retail sales in value terms grew by 6.1%. Even more surprisingly volumes rose by 5.3% indicating the application of a surprisingly modest price deflator. This could be a hint at some of the pricing pressures retailers faced last year, but also indicates a big jump in the amount of goods bought. Quarter on quarter growth was much more modest, but this is understandable given strong summer sales. Estimated volume growth for the year rose to 1.6%, reflecting relatively stable annualised growth.

Certainly, taken at face value, these figures can give rise to optimism for UK retailers. High street sellers will no doubt take heart from the news that smaller stores and department stores selling non-food products saw exceptional growth. Counter to trend the proportion of retail accounted for by online sales fell back compared to November, although it still experienced double digit growth on last year.  It is also true that within these categories there were some big winners in the UK retail sector over Christmas. The likes of Next, House of Fraser, Argos, Dixons, Primark, Asos, John Lewis can all boast of solid or, in some cases, spectacular Christmas sales.

However, many of these firms reported strongest growth in online sales and not through traditional channels, which seems at odds with the more modest online take-up reported by the ONS. In fact traditional retail has largely been reported as suffering during the Christmas period.

Earlier this month the British Retail Consortium and Springboard reported disappointing footfall which can only have been compounded by some poor weather conditions in the run-up to Christmas. Even chains that matched the ONS success story have struggled, with Debenhams and Mothercare both issuing warnings. Retailers such as M&S, Tesco and Morrisons saw like for like declines, while growth for Sainsbury’s was modest. With these retailers accounting for a fairly significant chunk of overall sales some observers are scratching their heads as to where this increase in sales has gone, and where it came from. With discounters presenting one of the big success stories over Christmas it seems odd that price sensitivity would go hand in hand with such a jump in consumption.

Volume growth of 5.3% on last December implies that consumers have been buying more, and there are factors to support this. One-off payouts from the PPI scandal were certainly expected to provide a spike in sales at some point, while the housing market recovery could also be driving spending on household goods. But wage growth is still trailing behind inflation and pressure on household incomes from other areas such as rising utility prices raises doubts about the credibility, or sustainability, of a 5%+ rise in sales volumes.

Consumers who leveraged credit to splash out over Christmas may face a more sobering 2014.The New Year was heralded by rail fare rises and a two-year austerity drive of £25bn in public sector cuts from the British Government. Unless wage inflation sees a sudden uptick sales growth in the coming year is unlikely to match the exuberance of Christmas.

Jon Copestake is chief retail analyst at the Economist Intelligence Unit