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British retail sales unexpectedly contracted at the end of last year, fuelling concerns that the resilient consumer sector has deteriorated and adding to pressure for an imminent rate cut from the Bank of England.
The volume of retail sales dropped 0.6 per cent in December compared to the previous month, while the November figure was revised down to a 0.8 per cent contraction, according to data from the Office for National Statistics. The figure for last month is well below the 0.5 per cent growth expected by economists polled by Reuters.
The fall in retail sales adds to the flow of negative incoming economic data for the final part of the year, which have raised expectations for a Bank of England rate cut as soon as the end of the month.
“December’s outright fall in retail sales, despite a potential boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the monetary policy committee yet closer still to cutting rates at the end of the month” said Thomas Pugh, UK economist at Capital Economics.
Market odds of a quarter point rate reduction on January 30 jumped to 75 per cent following the weak figures, according to Bloomberg data on swaps trading. As recently as last week the chances of a cut in the UK’s main interest rate to 0.5 per cent were less than 5 per cent.
Sterling fell 0.2 per cent to below $1.30.
“Retail sales fell sharply in the latest three months with almost all sectors showing a decline” said ONS Head of Retail Sales Rhian Murphy.
“December was the fifth consecutive month with no growth as food stores suffered particularly poor sales, showing the steepest fall for three years.”
In the last quarter, retail sales fell 1 per cent compared to the previous quarter, portraying a gloomy picture for the festive season as a whole and the most severe fourth quarter decline in nine years.
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