British retail sales unexpectedly fell in December, raising concerns of an economic contraction in the fourth quarter. The data, released on Friday, adds to the challenges faced by Finance Minister Rachel Reeves.
Retail sales, adjusted to account for Black Friday at the start of the month, dropped by 0.3% in December, following a downward revision to 0.1% growth in November, according to the Office for National Statistics (ONS).
After the release, the pound slipped below $1.22, losing a quarter of a cent against the dollar, while gilt yields fell sharply, reversing last week’s spike that drew comparisons to the market turbulence during former Prime Minister Liz Truss’s 2022 “mini-budget.”
Economists surveyed by Reuters had predicted a 0.4% monthly increase in retail sales.
The weak figures contribute to a streak of bleak economic data since Reeves unveiled the largest tax hikes since 1993 in October’s budget. The data has also heightened expectations for a potential Bank of England interest rate cut next month.
For the fourth quarter, retail sales fell by 0.8%, dragging economic growth by an estimated 0.04 percentage points, the ONS noted. With growth stagnating during the three months to November, the decline in retail sales alone could push the economy into contraction for the fourth quarter if other sectors fail to compensate.
“Disappointing retail sales add to the weaker-than-expected November GDP figures, suggesting the economy either stagnated or slightly contracted in Q4,” said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics. “We anticipate the Bank of England will take the opportunity to cut interest rates in February.”
Retail sales data, particularly for December, are known for volatility and frequent revisions, with historical data since 2019 showing a tendency for upward adjustments.
Excluding motor fuel, sales fell 0.6% month-on-month, driven by a steep decline in food sales, which hit their lowest levels since 2013. “Supermarkets were notably impacted,” said senior statistician Hannah Finselbach.
Total retail sales were 3.6% higher than a year ago, falling short of the 4.2% annual growth forecast.
