British retail sales fall to their lowest levels since May 2020

Official data from the Office for National Statistics revealed that British retail sales suffered their most significant decline in almost three years in December. This raises concerns about the possibility of the economy entering a recession towards the end of last year.

The report indicated that early Christmas preparations, particularly for food purchases, contributed to a 3.2% reduction in the volume of retail sales in December compared to November. This marks the largest decline since January 2021 and brought sales to their lowest level since May 2020.

The figure was worse than all expectations in a Reuters poll of economists, which had forecasted a decline of 0.5%. Following this data release, the pound sterling experienced a slight decline against the dollar and the euro, while British government bond prices rose.

The Office for National Statistics suggested that retail sales could deduct 0.04 percentage points from the British economy’s GDP in the fourth quarter. This potential deduction could make the difference between a negative reading and a stable performance reading for the economy, which contracted by 0.1% in the third quarter.

While the definition of a recession as two consecutive quarters of contraction is considered by many economists as somewhat arbitrary, it could have significant political implications for Prime Minister Rishi Sunak, especially in an election year.