British retail sales unexpectedly drop in December

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British retail sales unexpectedly shrank in December, dealing a fresh blow to Chancellor Rachel Reeves and raising the risk of a contraction in the economy at the end of last year.

The first official economic data for December showed that purchases of goods fell 0.3 percent between November and December. Office for National Statistics said Friday.

That compared with a 0.4 percent increase expected by economists polled by Reuters and followed a 0.1 percent rise in the previous month.

This comes a day after the data showed the economy rose 0.1 percent in NovemberSnapping the two-month contraction but less than the 0.2 percent expansion forecast by analysts. There has been no growth in the economy in the three months since November.

“Disappointing retail sales raise the risk of a smaller GDP fall in Q4,” said Elliott Jordan-Doak, senior economist at Pantheon Macroeconomics, adding that the Bank of England will “certainly cut rates” when the monetary policy committee meets next month.

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

After the figures were released, the pound 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 covers the busiest period of the year for retailers, sales fell by 0.8 per cent compared with the previous three months, ONS figures showed.

Alex Kerr, an economist at consultancy Capital Economics, said there had been a decline Retail sales Growth will decelerate in the fourth quarter.

The decline reduced the GDP level by 0.039 percentage points in the quarter, he added, but he still expected the economy to register no growth rather than contraction during the period.

“Either way, the economy is weak and there was no momentum at the end of last year,” Kerr said. Thanks to expected growth in household incomes, “we suspect the economy’s recent malaise will continue,” he added.

In December, declines in supermarkets were partially offset by growth in non-food stores, such as clothing retailers, which rebounded from declines in previous months, the ONS said.

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

ONS senior statistician Hannah Finselbach said December’s decline was “driven by a very poor month for food sales, which sank to their lowest level since 2013, with supermarkets particularly affected”.

For the full period last year, retail sales registered the first expansion in three years. Volume rose 0.7 percent in 2024, after declining 2.9 percent in 2023 and 4.1 percent in 2022.

Compared to their pre-coronavirus pandemic levels in February 2020, volumes fell 2.5 percent in December. Despite consumers spending 18 percent more, this reflects how price increases affect their purchasing power.

Additional reporting by Ian Smith