British retailers suffered their biggest drop in sales for nearly three years in December, raising the risk of the economy slipping into recession at the end of last year, according to official data released on Friday.
The Office for National Statistics (ONS) said people shopped for Christmas earlier than usual, particularly for food which contributed to a 3.2% contraction in total retail sales between December and November.
This was the biggest monthly decline since January 2021 and left sales levels at their lowest level since May 2020. The reading was worse than all forecasts in a Reuters poll of economists that showed a 0.5% decline.
Compared to the previous year, retail sales excluding fuel were 2.1% lower in volume terms and increased 2.3% in cash terms, the smallest annual increase since December 2022.
The pound weakened slightly against the US dollar and the euro and British government bond prices rose in response to the data. British shares rose on hopes the data could prompt an earlier interest rate cut by the Bank of England.
Retail sales are likely to shave 0.04 percentage points off British economic output in the fourth quarter, the ONS reports, which could be the difference between a negative reading and a flat reading for the economy. The UK economy reportedly shrank by 0.1% in the third quarter.
Although many economists consider the definition of recession to be two quarters in a row, it will have political implications for Prime Minister Rishi Sunak in an election year.
Chancellor of the Exchequer Jeremy Hunt, speaking in Davos on Thursday, said he wanted to move towards tax cuts ahead of a key annual budget which he hoped would revive positive views of them.
