British Retail Sales Fall in December

By Andy Bruce and Suban Abdulla

LONDON (Reuters) – British retail sales fell unexpectedly in December, according to data released on Friday, raising concerns about a potential economic contraction in the fourth quarter. This situation adds to the challenges faced by finance minister Rachel Reeves.

Retail sales, adjusted for the inclusion of Black Friday sales at the start of the month, decreased by 0.3% month-on-month in December, following a downwardly revised 0.1% expansion in November, as reported by the Office for National Statistics.

The sterling weakened a quarter of a cent against the dollar after the announcement, dipping below $1.22, while gilt yields slumped, reversing a spike from the previous week reminiscent of the market turmoil following former Prime Minister Liz Truss’s “mini-budget” in 2022.

In a BBC podcast, Reeves stated she is ignoring her critics and will continue making tough decisions aimed at economic growth. Economists surveyed by Reuters had anticipated a monthly retail sales increase of 0.4%.

These figures contribute to a series of disappointing economic indicators since Reeves outlined Britain’s biggest tax increases since 1993 in her October budget, leading to heightened expectations for a Bank of England interest rate cut next month.

For the fourth quarter as a whole, retail sales fell by 0.8%, which exerted a drag of approximately 0.04 percentage points on economic growth, as per the statistics office.

With growth already stagnating in the three months ending in November, the decline in retail sales alone could push the economy into contraction for the fourth quarter, assuming no compensatory growth from other sectors.

“Softening sales add to disappointment from November GDP earlier this week, suggesting the economy stagnated in Q4 or may even have contracted slightly,” noted Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics. “The (BoE) have a window of opportunity to cut rates in February, which we expect them to utilize.”

Retail sales data tend to be volatile and subject to revisions, particularly for December readings which historically have a tendency to be revised upwards.

Excluding motor fuel, retail sales dropped by 0.6% on the month, driven by a significant decline in food sales, which hit their lowest level since 2013, particularly impacting supermarkets, according to senior statistician Hannah Finselbach.

Total retail sales were 3.6% higher than a year ago, compared to the median forecast for 4.2% annual growth.