Unexpected sharp drop in UK retail sales further boosts risk of recession

UK retail sales retail sales fell by 3.2% in December, well below forecast for 0.5% drop and against 1.4% increase in November.

This was the biggest drop since January 2021 pushing the sales to the lowest since May 2020.Annualized retail sales were down 2.4% compared to the same period last year and 0.2% increase previous month, also strongly disappointing expectations for 1.1% expansion.

So-called core retail sales, which exclude volatile petrol component, fell by 3.3% last month after 1.5% increase in November and below consensus for 0.6% drop.

The biggest drop in retail sales for almost three years in December, added to fears that the economy entered recession late last year after contracting by 0.1% in the third quarter.

Economists expect more damages to the economy from the contraction but are also concerned about political implications in an election year.

The stance of ruling Conservative Party that Britain is moving in the right direction, is likely to be undermined by the fact that the economy is in the recession, although Conservatives hope that their idea of cutting taxes ahead of annual budget would improve their position and partially offset negative outlook.