The impact of the UK’s third lockdown on the economy has been laid bare by official figures showing that spending in stores and online fell by more than 8% last month while government borrowing was the highest for a January since modern records began.
All sectors of retailing except for food and online outlets were affected by the imposition of tough new restrictions across the UK, and although the Office for National Statistics said the decline was not as severe as the 22% drop in the first lockdown last April, it was substantially worse than the 3% drop the City had expected.
The closure of non-essential stores hit two sectors – clothing and footwear, and household goods – particularly hard. Clothing sales were down 35% from December, while household goods registered a drop of almost 20%.
A breakdown of the ONS data found that with the closure of stores on high streets and in shopping centres, consumers switched to buying online. Online spending accounted for a record 35.2% of sales last month, up from 29.6% in December 2020 and 19.5% in January 2020.
After steadily recovering from the impact of the initial pandemic-induced lockdown during the course of 2020, retail sales in January were 5.5% lower than they were when the global crisis first hit the UK in February last year.
Meanwhile, separate ONS figures for public borrowing – the difference between what the government spends and what it receives in taxes – stood at £8.8bn last month, the first deficit in 10 years.
January is usually a strong month for the public finances because receipts from self-assessment returns arrive in the government’s coffers but the ONS said a small annual increase in tax receipts was outweighed by higher spending, up almost £20bn on a year earlier. The total included £5.1bn of expenditure on coronavirus job support schemes.
In the first 10 months of the 2020-21 financial year, ONS figures show the government borrowed £270.6bn – up by £220bn on the same period of the previous year and comfortably the highest on record.
With February and March usually heavy months for borrowing even during years when the economy is not subject to restrictions, analysts expect the final total for 2020-21 to be close to £400bn.
The chancellor, Rishi Sunak, has indicated that he will provide further support for jobs and businesses in the budget on 3 March.
Paul Dales, a UK economist at Capital Economics, said the drop in retail sales volumes in January was twice as big as the 4% fall during November’s lockdown. He added: “It would have been even worse if the government hadn’t used £8.8bn of borrowing to support the economy.”
Jace Tyrrell, the chief executive of New West End Company, which represents 600 businesses on Oxford Street, Regent Street, Bond Street and in Mayfair, said retailers were waiting with bated breath for Monday’s announcement by the prime minister of the roadmap out of lockdown.
“We require clarity and decisiveness to ensure that there are no further lockdowns, and assurance from the government that support will be made available to retailers in bridging the gap until sales can properly resume,” he added.