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British retail sales unexpectedly shrank in December, dealing a fresh blow to chancellor Rachel Reeves and raising the risk that the economy contracted at the end of last year.
The first official economic data for December showed the seasonally adjusted volume of goods bought fell 0.3 per cent between November and December, the Office for National Statistics said on Friday.
Economists polled by Reuters had expected a 0.4 per cent increase, after a 0.1 per cent rise in retail sales the previous month.
The figures come a day after data showed the economy grew 0.1 per cent in November, snapping two months of contraction but falling short of the 0.2 per cent expansion forecast by analysts. The economy registered no growth in the three months to November.
“Disappointing retail sales raise the risk of a small GDP fall in Q4,” said Elliott Jordan-Doak, senior economist at Pantheon Macroeconomics, adding that the Bank of England would “definitely cut rates” when the Monetary Policy Committee meets next month.
The MPC left rates unchanged at 4.75 per cent in December after cutting borrowing costs twice in 2024. Markets largely expect that the central bank will cut its benchmark rate by a quarter-point in February.
Following the release of the figures, the pound dropped 0.5 per cent to $1.218. Gilts continued to rally, pushing the 10-year yield down 0.05 percentage points to 4.64 per cent.
In the three months to December, which covers the busiest period of the year for retailers, sales volumes fell 0.8 per cent compared with the previous three months, the ONS figures showed.
Alex Kerr, economist at the consultancy Capital Economics, said the fall in retail sales would have detracted from growth in the fourth quarter.
The fall reduced the level of GDP by 0.039 percentage points in the quarter, he added, but he still expected the economy to have registered no growth rather than contracted in the period.
“Either way, the economy is weak and had no momentum at the end of last year,” said Kerr. Thanks to expected growth in household income, “we doubt the economy’s recent malaise will continue,” he added.
In December, declines at supermarkets were offset in part by a rise in non-food stores, such as clothing retailers, which rebounded from falls in previous months, the ONS said.
Nicholas Found, head of commercial content at consumer research company Retail Economics, said: “Retail sales disappointed over the golden quarter, reflecting a tough trading environment.”
ONS senior statistician Hannah Finselbach said December’s fall “was driven by a very poor month for food sales, which sank to their lowest level since 2013, with supermarkets particularly affected”.
For the whole of last year, retail sales registered the first expansion in three years. Volumes rose by 0.7 per cent in 2024, following a fall of 2.9 per cent in 2023 and a 4.1 per cent drop in 2022.
When compared with their pre-coronavirus pandemic level in February 2020, volumes were down by 2.5 per cent in December. This is despite consumers spending 18 per cent more, reflecting how the rise in prices hit their purchasing power.
Additional reporting by Ian Smith
