British retailers suffered the biggest drop in sales for almost three years during December, raising the risk that the economy slipped into recession late last year, official data showed on Friday.
The Office for National Statistics (ONS) said people doing Christmas shopping earlier than usual – especially for food – contributed to retail sales volumes shrinking 3.2% between December and November.
It was the biggest monthly drop since January 2021 and left the level of sales at its lowest ebb since May 2020.
The reading was worse than all forecasts in a Reuters poll of economists which had pointed to a 0.5% fall.
Compared with a year earlier, retail sales excluding fuel were 2.1% lower in volume terms and up 2.3% in cash terms, the smallest annual increase since December 2022.
While chiming with other downbeat retail surveys from the Confederation of British Industry and British Retail Consortium, Friday’s data looked at odds with some positive Christmas trading reports from Britain’s largest supermarkets.
The pound weakened slightly against the U.S. dollar and euro and British government bond prices rose in response to the data. British stocks rose on hopes the data could prompt earlier interest rate cuts from the Bank of England.
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.
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.
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