Shock drop in shop sales adds to fears over UK economy

Shop sales in the UK unexpectedly fell in the run up to Christmas due to a "very poor month" for food being sold in supermarkets, adding to concerns over the health of the UK economy.

Sales fell by 0.3% in December, according to official figures, well below expectations of a 0.4% rise.

Food sales sank to their lowest level for more than 10 years last month, but clothing shops and department stores saw a boost in trade.

The weak data follows sluggish economic growth figures and recent turbulence in financial markets which has sent the UK's borrowing costs to the highest level for several years and the value of the pound down.

The pound slipped to $1.216 following the release of the retail sales figures, but has since recovered to $1.22.

The Labour government has made growth its key objective, but figures released on Thursday showed the economy failed to grow in the three months to November.

Earlier this week, Chancellor Rachel Reeves pledged to go "further and faster" to improve growth in order to boost living standards.

Economists said the retail sales figures capped off a "disappointing" end to 2024 for the sector, in a period businesses typically seek to make the most money.

"With the chancellor under mounting pressure to deliver growth, the news that retail sales fell in December of all months is at the very least unwelcome," said Danni Hewson, head of financial analysis at AJ Bell.

"It's a crucial period of time when retailers make enough money to see them through those sluggish early months of the year when people are paying off their credit card bills and thinking ahead to summer sun."

Alex Kerr, UK economist at Capital Economics, said the worse-than-expected sales figures were "further evidence that the economy had very little momentum at the end of last year".

But he added: "Although the economy clearly struggled at the end of last year, we doubt that will last."

While the weak sales figures hit the value of the pound, hopes that interest rates will be cut further in February helped to push up share prices.

The FTSE 100 stock index of the UK's biggest publicly-listed companies touched a record high of 8,480 on Friday morning.

The blow to retail last month was driven by a drop in sales volumes in supermarkets, but butchers and bakers, along with alcohol and tobacco/vaping shops also struggled, according to Hannah Finselbach, senior statistician at the Office for National Statistics.

In contrast, clothing and shoe shops saw sales rise by 4.4% last month, rebounding from falls in November and October and reflecting the jump in spending pre-Christmas.

Many businesses have criticised measures announced in the Budget, which will see an increase in the rate of National Insurance paid by employers and a reduction in the threshold they start paying it from April. The minimum wage is also going up.

The boss of Next, Lord Wolfson, told the BBC the changes could make it "harder for people to enter the workforce".

Lisa Hooker, leader of industry for consumer markets at PwC, said 2025 was likely to see the return of "higher price inflation as retailers pass on the increasing cost of doing business".