Strong retail sales in December 2011 may have saved the UK economy from contracting in the final quarter of last year.

Office for National Statistics figures showed a 0.6 per cent sales increase from November to December, bringing the three-month growth rate to 1.1 per cent.

The sales growth was driven by automotive fuel, up 11.2 per cent from December 2010, and clothing and footwear stores, up 6.3 per cent year-on-year.

Dragging down the figures were household goods stores, which dropped 3.6 per cent, and other stores, down 1.9 per cent.

However, Chris Williamson, chief economist at Markit, pointed out that the higher retail sales were only achieved because ‘retailers lured hard-pressed consumers with discounts at the expense of profit margins’.

Despite the drop in profit margins, the strong sales figures may have saved the economy from contracting at the end of 2011, but could lead to negative growth at the start of 2012 as a result of lower New Year sales.

Williamson warned, ‘The big question therefore is how big the New Year hangover will be, as households retrench from the Christmas mini-spending spree.’

Capital Economics UK economist, Samuel Tombs, agreed that ‘consumers may well have brought forward spending from the New Year’ and that the ‘continued intense squeeze on households’ real incomes’ means that consumers won’t be able to continue increasing their spending.

Williamson claimed that it was likely that the economy ‘flat-lined’ in the final quarter, implying zero growth, and that more quantitative easing from the Bank of England was increasingly likely in order to stimulate growth.