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Despite the hype of deep
discounting, the retail sales figures released today by major high street
retailers shows sales slumping by between 7.5% and 10% which clearly
demonstrates that the long experienced shoppers to a large degree did not get
caught up with sales frenzy of previous years and refused to fall for the
sales gimmicks where actual real discounting was few and far between. This
coupled with the economy falling of the edge of a cliff despite green shoots
ramblings by Labour's Shriti Vadera, sets a bleak scene for retailers for the
whole of 2009 as my earlier analysis pointed out that the 30% crash in sterling will lead to higher restocking
costs, whilst at the same time consumers increasingly expect discounting and
therefore put off purchasing for the closing down sales.
Retailers Sales Crash
Retailers reporting
like for like sales drops against the same period last year.
- Dixon's / Curry's / PC World -10%
- Argos -7.5%
- Homebase -10%
Retail Sales Deflation
The trend and
inflation adjusted retail sales data continues to represent the real state of
the UK retail sales market that continues to deflate at a rate of -1.2% on a
year earlier for November data.
 
Retail sector
deflation continues to claim major retailers as its most public victims to
date include the major high street chains of Woolworth's , Zavvi and Adams,
that collectively account for some 50,000 jobs. The expectation that over Christmas and January retail sales
activity 'should' rise due to discounting and the closing down sales has
failed to materialise despite our European and American cousins boosting
retail sales volume by benefiting from the 30% crash in sterling which means
the already liberally advertised 20% discounts translate into a 50% discount
for European shoppers, much as Briton's benefited not so long ago from the
cheap shopping trips to New York at an exchange rate north of £/$2.00.
However as earlier
analysis suggested that the fall in sterling will result in much
higher high street consumer prices during 2009 as those retailers that have
not gone bust seek to replenish stocks at much higher prices during 2009. This
confirms analysis that the January Sales for Britons may prove to be more
illusionary than real as the fall in sterling has already soaked up corporate
margins, which again confirms that those UK shoppers seeking to make large
purchases are probably better off to do so sooner rather than later.
UK Heading for Real Deflation
During 2009
The UK economy is
heading for real deflation as the UK inflation forecast for 2009 concluded, with the RPI measure
is expected to go negative and target -1.2% by July 2009.
UK Interest Rates Crashing Towards
1%
This months interest
rate cut of 0.5% for January is inline with my forecast for interest rates to
target a fall to 1% by mid 2009 as the below graph illustrates. However
given the deteriorating state of the UK economy there is a risk that rates
could overshoot to the downside during mid 2009 by falling below 1%. As the
credit markets have frozen the real economic rate has become far less
responsive to base rate cuts, therefore the latest cut is expected to make
very little difference to the severity of the recession, thus the buzz word
for 2009 is "Quantative Easing" which basically means printing
money, the consequences of which will be higher inflation as we come out of
economic contraction.
UK Housing Market Crash and
Depression
UK house prices
continued to crash lower, with the latest data from the Halifax showing
average house prices falling by £4,400 in December. The house price
data is inline (-0.5% deviation) with the recently updated
house price forecast that covers the trend into 2012 that projects for a
total drop from peak to trough of 38%, with a 16% drop in house prices
targeted for 2009 to be followed by a sustained depression for several years
thereafter as the below graph illustrates.
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Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of
MarketOracle.co.uk.and has over 20 years experience in trading and investing.
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