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British retail sales plummeted in December, marking the biggest decline in nearly three years and raising the risk that the UK economy slipped into a technical recession at the end of last year.
The quantity of goods bought in Great Britain fell 3.2 per cent between November and December, reversing a 1.4 per cent increase in the previous month, the Office for National Statistics said on Friday.
The decline was much steeper than the 0.5 per cent fall forecast by economists polled by Reuters, and was the largest monthly fall since January 2021, when coronavirus restrictions hit sales.
The poor reading increased the likelihood that the economy could have shrunk marginally at the end of last year and entered a technical recession, following a 0.1 per cent contraction in the three months to September.
“Today’s release would subtract around 0.15 percentage points from real GDP growth in December, which increases the chances the economy may have ended 2023 in the mildest of mild recessions,” said Alex Kerr, economist at Capital Economics.
“Following a strong November, retail sales plummeted in December with all types of outlets being hit,” said Heather Bovill, ONS deputy director for surveys and economic indicators.
The fall was driven in part by people doing their Christmas shopping early, particularly during the Black Friday sale period in November, the ONS said. Economists also blamed high prices and borrowing costs for damping consumer confidence and spending power.
The ONS figures provide an early indication of the performance of the consumer sector in a key month for spending. Data on the UK’s economic growth in the final quarter of 2023 will be released on February 15.
Martin Beck, chief economic adviser to the consultancy EY ITEM Club, said the data might be revised higher in following releases, but “as things stand, the odds that the economy fell into a technical recession in late 2023 have increased”.
The pound fell 0.2 per cent against the dollar to $1.268 as investors bet that the data makes early interest rate cuts by the Bank of England slightly more likely. Rate-sensitive two-year gilt yields — which move inversely to prices — fell 0.07 percentage points to 4.22 per cent.
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s retail group, said the figures marked “a shocking end to the golden quarter”.
“Black Friday tempted some consumers to bring forward their spending to November, but ongoing cost-of-living pressures meant most households cut back across all retail categories,” she added.
Declines were reported in all the main categories of stores. Bovill said food stores performed “very poorly”, logging their steepest drop since May 2021. Food store sales volumes were down 3.1 per cent in December, from a rise of 1.1 per cent the previous month.
“Department stores, clothing shops and household goods retailers reported sluggish sales too as consumers spent less on Christmas gifts, but had also purchased earlier during Black Friday promotions, to help spread the cost,” she added.
Non-food store sales volumes dropped 3.9 per cent in December, following a 2.7 per cent increase in November. Fuel sales fell 1.9 per cent.
Compared with December 2022, sales were down 2.4 per cent, missing expectations of a 1.1 per cent expansion. This came despite consumers spending 0.6 per cent more than in December 2022, reflecting the impact of high prices on household finances.
On an annual basis, sales volumes fell 2.8 per cent in 2023 and were at their lowest level since 2018.
Many analysts said sales should improve in 2024 as real wages increased and inflation continued to decline. However, Baker said “consumers probably won’t start to feel like they have more money in their pocket until the summer”.
“After a challenging year, another six months of tough trading could be too long for some retailers,” she added.
Additional reporting by Stephanie Stacey
