Retail sales in the UK experienced an unexpected drop in December, falling by 0.3% instead of the anticipated 0.4% rise, raising concerns about the state of the economy during the crucial pre-Christmas period. The decline was primarily driven by a significant drop in food sales, which fell to their lowest levels in over a decade, despite clothing shops and department stores seeing a resurgence with a 4.4% increase in sales. Smaller retailers, including butchers, bakers, and alcohol and tobacco shops, also reported struggles during the festive season.
The retail slump comes as the UK faces broader economic challenges. Chancellor Rachel Reeves has come under increased scrutiny over the government’s economic policies, which have struggled to stimulate growth. Reeves acknowledged the need for stronger efforts to boost living standards and economic performance. Despite sluggish growth figures, the International Monetary Fund (IMF) upgraded its forecast for UK economic growth in 2025 to 1.6%, predicting it would outpace major European economies like Germany, France, and Italy over the next two years.
Financial markets reflected a mix of caution and optimism. The pound dipped briefly following the release of the retail sales figures, falling to $1.216 before recovering to $1.22. Expectations of a potential interest rate cut by the Bank of England also lifted sentiment, driving the FTSE 100 to a record high.
The chancellor’s budget measures, including an increase in National Insurance rates for employers, have drawn criticism from business leaders, with concerns that these changes could hinder workforce growth. Retailers are also bracing for higher inflation in 2025, as rising costs may be passed on to consumers.
Despite the challenging end to 2024, many economists remain optimistic about the future, pointing to rising disposable incomes and improved economic forecasts as potential drivers of recovery. The unexpected retail dip underscores the need for balanced policies to support both businesses and consumers as the UK economy moves into 2025.
