UK retail sales slump points to new risk of recession

A Routemaster bus makes its way past shops with Christmas decorations on Bond Street in London, Britain Dec 16, 2023. REUTERS/Kevin Coombs/File photo

LONDON  -British retailers suffered the biggest drop in sales for almost three years during December, raising the risk that the economy entered recession in the fourth quarter, official data showed on Friday.

The Office for National Statistics said retail sales volumes shrank 3.2 percent between December and November – the biggest drop since January 2021 and worse than all forecasts in a Reuters poll of economists that had pointed to a 0.5-percent drop.

Retail sales are likely to subtract 0.04 percentage points from British economic output in the fourth quarter, the ONS said, which could be the difference between a negative reading and a flat reading for the economy.

READ: Two thirds of Britons to spend less this Christmas – Accenture

The economy contracted 0.1 percent in the third quarter.

While many economists regard the definition of recession as two quarters of contraction as arbitrary, it would have major political implications for Prime Minister Rishi Sunak in what is due to be an election year.

“Food stores performed very poorly, with their steepest fall since May 2021 as early Christmas shopping led to slow December sales,” Heather Bovill, deputy director for surveys and economic indicators at the ONS said.

READ: UK recession might be under way after economy shrinks in Q3

The ONS said there was anecdotal evidence that consumers had stocked up on Christmas food and gifts in November, when sales grew 1.4 percent on the month.

But the scale of December’s drop surprised economists and left retail sales volumes 2.4 percent lower than a year ago.

“The drags from the cost-of-living crisis and sharp rise in interest rates are still weighing on real incomes and consumer spending,” said Alex Kerr, economist at consultancy Capital Economics.