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British retail sales fell unexpectedly in December, dealing another blow to Chancellor Rachel Reeves and raising the risk of a contraction in the economy 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, the Office for National Statistics said Friday.
Economists polled by Reuters had expected a 0.4 percent rise, following a 0.1 percent rise in retail sales the previous month.
The figures come a day after data showed the economy rose 0.1 percent in Novemberending two months of contraction but falling short of the 0.2 percent expansion forecast by analysts. The economy recorded no growth in the three months to November.
“Disappointing retail sales raise the risk of a slight decline in GDP in the fourth quarter,” said Elliott Jordan-Doak, senior economist at Pantheon Macronomics, adding that the Bank of England would “definitely cut rates” at the meeting of the monetary policy committee next month.
The MPC left rates unchanged at 4.75 percent in December after cutting borrowing costs twice in 2024. Markets widely expect the central bank to cut its benchmark rate by a quarter point in February.
Following the release of the figures, the pound sterling fell 0.5 percent to $1.218. Gilts continued to rally, pushing the 10-year yield down 0.05 percentage points to 4.64 percent.
In the three months to December, which cover the busiest period of the year for retailers, sales volumes fell by 0.8 per cent compared to the previous three months, according to ONS figures.
Alex Kerr, an economist at consultancy Capital Economics, said the decline retail sales would have hurt growth in the fourth quarter.
The fall reduced the GDP level by 0.039 percentage points during the quarter, he added, but he still expects the economy to have recorded no growth rather than contracting over of this period.
“Regardless, the economy is weak and had no momentum at the end of last year,” Kerr said. Thanks to expected growth in household incomes, “we doubt that the recent economic malaise will last,” he added.
In December, declines in supermarkets were partly offset by a rise in non-food stores, such as clothing retailers, which rebounded from declines in previous months, the ONS said.
Nicholas Found, head of retail content at consumer research firm Retail Economics, said: “Retail sales were disappointing in the golden quarter, reflecting a challenging trading environment. »
Hannah Finselbach, senior statistician at the ONS, said December’s decline “was driven by a very poor month for food sales, which fell to their lowest level since 2013, with supermarkets particularly hard hit”.
Last year as a whole, retail sales recorded their first increase in three years. Volumes increased by 0.7 percent in 2024, following a decline of 2.9 percent in 2023 and a decline of 4.1 percent in 2022.
Compared to their level before the coronavirus pandemic in February 2020, volumes decreased by 2.5 percent in December. This is despite consumers spending 18 percent more, reflecting the impact of rising prices on their purchasing power.
Additional reporting by Ian Smith
