British retail sales unexpectedly drop in December

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UK retail sales unexpectedly shrank in December, dealing a fresh blow to Chancellor Rachel Reeves and raising the risk of an economic downturn late last year.

The first official economic data for December showed that the seasonally adjusted volume of goods purchased fell by 0.3 percent between November and December. Office for National Statistics said on Friday.

Economists polled by Reuters had expected a 0.4 percent increase, following a 0.1 percent rise in retail sales the previous month.

The numbers come a day after data showed the economy increased by 0.1 percent in NovemberShrinking for 2 months, but falling short of analysts’ forecast of a 0.2 percent expansion, the economy did not grow in the three months to November.

“Disappointing retail sales raise the risk of a small fall in GDP in the fourth quarter,” said Elliott Jordan-Doak, senior economist at Pantheon Macroeconomics, adding that the Bank of England would “definitely cut rates” when it meets the Monetary Policy Committee next month. session.

The MPC left interest rates unchanged in December at 4.75 percent after cutting borrowing costs twice in 2024. Markets widely expect the central bank to cut its benchmark interest rate by a quarter point in February.

The pound fell 0.5 percent to $1.218 after the data.Gilts continued to rally, with the 10-year yield down 0.05 percentage point to 4.64 percent.

In the three months to December, which covers the busiest period of the year for retailers, sales fell by 0.8 per cent on the previous three months, ONS data showed.

Economist Alex Kerr of the Capital Economics consulting firm says that the decline retail sales would lose growth in the fourth quarter.

The recession reduced the level of GDP by 0.039 percentage points in the quarter, he added, but he still expected the economy to not grow, rather than contract, during the period.

“In any case, the economy is weak and lacked momentum at the end of last year,” Kerr said.With the expected increase in household incomes, “we suspect the recent deterioration in the economy will continue,” he added.

Declines in supermarkets in December were partly offset by growth in non-food stores such as clothing retailers, which recovered from falls in previous months, the ONS said.

Nicholas Found, head of commercial content at consumer research firm Retail Economics, says:

Hannah Finselbach, senior statistician at the ONS, said the fall in December “led to a very poor month for food sales, which fell to their lowest level since 2013, with supermarkets particularly affected”.

Over the past year, retail trade has recorded its first expansion in three years. Volumes rose 0.7 percent in 2024, following a 2.9 percent decline in 2023 and a 4.1 percent decline in 2022.

In February 2020, volumes were down 2.5 percent in December compared to their pre-coronavirus levels. This is despite consumers spending 18 percent more, reflecting how rising prices are hitting their purchasing power.

Additional reporting by Ian Smith