UK Retail Sales Bounce Out of Deflation on Deep Discounting

Economics / UK Economy Feb 12, 2009 - 08:30 PM GMT

Best Financial Markets Analysis Article Headline retail sales bounced strongly in December rising by 2% to an annualised 3.7% as distressed retailers slashed margins on stock to avert bankruptcy amidst price cutting in the wake of heavily discounted stock in the closing down sales of major retailers such as 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 materialised as our European and American cousins boosted retail sales volume by benefiting from the 30% crash in sterling which means the already liberally advertised 20% discounts translated 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.

Retail Sales Trends

The above graphs illustrate the strong rebound in retail sales, both headline and real retail sales trend that has moved out of deep deflation. However as per the points mentioned earlier, it is highly unlikely retail sales volume will grow past the January sales season into Febuary 2009 and March 2009, in the face of heavy job losses and retailers going bankrupt.

For more on the impact of deflation, download the world's foremost expert on and proponent of the deflationary scenario, Robert Prechter's FREE 60-page Deflation Survival eBook or browse various deflation topics like those below :

What happens during deflation?
Why is deflation bad?
Effects of deflation
Deflationary spiral
And much more in Prechter's FREE Deflation Survival Guide.

The question that now needs to be answered is how far will UK's GDP contract during the current recession, as that will determine how bad the housing bear market will be in real terms. The indepth forecast for the UK recession is underway, to receive this in your email in box on the date of publication subscribe to my always free email newsletter.

By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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