UK retail sales unexpectedly fell in December

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British retail sales unexpectedly fell in December, dealing a new blow to Prime Minister Rachel Reeves and increasing the risk of the economy collapsing late last year.

The first official economic data for December showed seasonally adjusted purchases of goods fell 0.3% between November and December. Office for National Statistics said on Friday.

Economists polled by Reuters had expected a 0.4% increase, after retail sales rose 0.1% last month.

The figures came a day after data showed the economy increased 0.1% in Novemberending two months of recession but falling short of the 0.2% growth forecast by analysts. The economy posted no growth in the three months to November.

“Disappointing retail sales increase the risk of a slight GDP contraction in the fourth quarter,” said Elliott Jordan-Doak, senior economist at Pantheon Macro Economics, adding that the Bank of England “certainly will cut interest rates” when the Monetary Policy Committee meets next month.

MPC kept interest rates unchanged at 4.75% in December after cutting borrowing costs twice in 2024. Most markets expect the central bank to cut benchmark interest rates by a quarter of a point on entry February.

After the data was released, the British pound fell 0.5% to 1,218 USD. Gold prices continued to rise, pushing 10-year bond yields down 0.05 percentage points to 4.64%.

ONS figures show that in the three months to December, the busiest time of the year for retailers, sales volumes fell by 0.8% compared with the previous three months.

Alex Kerr, an economist at consulting firm Capital Economics, said the decline retail sales will reduce the growth rate in the fourth quarter.

The decline reduced GDP levels by 0.039 percentage points in the quarter, he added, but he still predicted the economy would stagnate rather than contract during the period.

“In any case, the economy was weak and had no momentum at the end of last year,” Kerr said. Thanks to expected growth in household income, “we suspect the recent economic malaise will continue,” he added.

The ONS said in December the fall in supermarkets was partly offset by increases in non-food stores, such as clothing retailers, which recovered from a fall in months ago.

“Retail sales disappointed in the golden quarter, reflecting the difficult trading environment,” said Nicholas Found, head of trade content at consumer research firm Retail Economics.

ONS senior statistician Hannah Finselbach said the December fall “was driven by a very poor month for food sales, falling to their lowest level since 2013, with supermarkets hit special benefits”.

For all of last year, retail sales recorded their first growth in three years. Volumes increase 0.7% in 2024, after falling 2.9% in 2023 and falling 4.1% in 2022.

When compared to pre-coronavirus levels in February 2020, volumes fell 2.5% in December. This came despite consumers spending 18% more, reflecting increased How does price affect their purchasing power?

Additional reporting by Ian Smith