(Bloomberg) — UK retail sales posted a surprise fall around last month’s crucial Christmas period in a fresh setback for the Labour government’s hopes of reviving economic growth.
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The volume of goods sold in stores and online dropped 0.3% in December following a 0.1% gain in November that was revised down from 0.2%, the Office for National Statistics. Economists were expecting a 0.4% increase for last month.
The figures add to anecdotal evidence of a disappointing Christmas for retailers. Despite growing real incomes, households are in cautious mood amid warnings of an inflation resurgence and expectations of slower declines in borrowing costs.
“This was driven by a very poor month for food sales, which sank to their lowest level since 2013, with supermarkets particularly affected,” said Hannah Finselbach, ONS senior statistician.
Sluggish Economy
Economists are becoming increasingly worried that the UK is facing a stagflationary trap where high inflation meets low growth to inflict a large amount of pain on businesses and households. Separate GDP data Thursday showed output barely moved since Labour took office in July, while inflation is set to continue to overshoot the Bank of England’s 2% target this year due to higher energy costs.
Retail sales fell 0.8% in the fourth quarter as October’s number was also revised down, which has the effect of knocking 0.04 percentage points off GDP. It was the steepest quarterly fall since the fourth quarter of 2023, when sales also fell 0.8%.
Concerns over UK growth have put pressure on gilts since the start of the year, casting doubt over the sustainability of the Chancellor of the Exchequer Rachel Reeves’ spending plans. Reeves has said she needs faster growth in order to lift tax receipts and fund investment in public services and infrastructure.
The ONS data showed that sales have risen in only three of the six months since Labour came to power. The level of retail sales is just 0.1% higher than in June.
The figures were adjusted to capture the impact of Black Friday, which fell in the ONS’s December reporting period in 2024 rather than in November. When removing the adjustment, sales grew more strongly than in previous December reports, the statistics body said.
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While retail sales are 3.6% above levels seen last year, they’re haven’t recovered to their pre-Covid values.
–With assistance from Mark Evans, Harumi Ichikura and Joel Rinneby.
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