Recession fears: Retail sales fall at fastest rate in three years

UK retail sales shrank by their largest amount in nearly three years last month, reigniting fears Britain could fall into recession of the fourth quarter of 2024. 

Retail sales volumes declined by 3.2 per cent in December, having expanded by 1.4 per cent in November, according to the Office for National Statistics.

This was the biggest fall since January 2021 when ‘non-essential’ outlets were forced to shut their doors due to Covid-related restrictions, and is far higher than the 0.5 per cent decrease predicted by economists.

Bad Christmas: Retail sales volumes declined by 3.2 per cent in December, having expanded by 1.4 per cent in November, according to the Office for National Statistics

The ONS partly attributed the heavy drop to some Britons buying their Christmas presents earlier than usual in November or taking advantage of Black Friday deals.

Food store sales slid by 3.1 per cent following an increase of 1.1 per cent the previous month, while non-food store purchases slumped by 3.9 per cent.

Department store sales took a particular beating, slumping by 7.1 per cent as retailers endured quieter post-Christmas trading and weaker demand for household goods.

There were also significant falls in purchases at shops selling sports equipment, toys, games, hardware, watches and jewellery.

Meanwhile, the value of items bought by customers dropped by 3.6 per cent. And on an annual basis, sales volumes reduced by 2.8 per cent to their smallest level in five years.

‘Retailer after retailer has been warning that this Christmas has been a tough one, and these figures lay bare just how hard things have been,’ said Danni Hewson, head of financial analysis at AJ Bell.

Watches of Switzerland, Burberry and Mulberry all observed poor trade over the festive season amid a wider slowdown in luxury goods spending and concerns over the absence of VAT-free shopping.

Over the past couple of years, consumers have faced extreme cost-of-living pressures caused largely by soaring energy prices and interest rate hikes pushing up borrowing costs.

ONS figures released on Wednesday found that the UK consumer prices index grew unexpectedly to 4 per cent in December.

Although inflation has more than halved from its peak of 11 per cent in October 2022, the increase left analysts more pessimistic that the Bank of England will soon make some base rate cuts.

Daniel Mahoney, UK economist at Handelsbanken, warned: ‘There is no doubt that December’s retail sales figures were far worse than expected and now raise the prospect of the UK being in a technical recession (two consecutive quarters of negative).

However, he said this should be a ‘very shallow’ recession with the outlook ‘finely balanced as to whether Q4 would post negative growth’. 

He added: ‘This print would suggest that Q4’s print may, indeed, be negative.’ 

James Smith, developed markets economist at ING, said: ‘The fall in sales will bolster the chances of another small decline in fourth quarter UK GDP, and that would mean two quarters of negative growth – a technical recession, though in name only. 

‘The UK retail sector ended the year on a dramatic low. But with consumer confidence having recovered, real wage growth positive and the mortgage squeeze being dampened by the fall in market rates, we think December’s fall in retail sales will be reversed in the first quarter.’

This post first appeared on Dailymail.co.uk