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Poor UK Retail Sales increase chance of technical UK recession

Abysmal UK Retail Sales data released by the ONS on Friday has ratcheted up the probability of a UK technical recession as spending in December crumbled.

“UK retail sales were significantly lower than expected, dropping 3.2% month-on-month in December, according to data from the ONS,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

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“This represents the largest monthly fall since January 2021 and is a clear signal of weakening sentiment. There is some distortion from November’s Black Friday, but the overall picture is one of consumer caution over the festive trading season.”

After GDP contracted 0.3% in October and then expanded 0.3% in November, December’s activity will dictate whether the UK records a technical recession in the fourth quarter of 2023.

With retail sales making up a substantial proportion of GDP in December, today’s poor reading significantly increased the chances of recession but does not guarantee it.

“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. Not since January 2021 when people’s ability to shop was curtailed by Covid lockdowns has such a drop off in spend been recorded, and remember that was post-Christmas rather than at the sharp end of the crucial ‘golden quarter’,” said Danni Hewson, AJ Bell head of financial analysis.

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“Even the festive feast fell victim to frugality, with people plumping for little luxuries or curbing celebrations to a single day rather than many. Online retailers did get a boost in terms of the proportion of sales they nabbed, but then this year they weren’t hampered by postal strikes.

“The big question is did people spend their money elsewhere or not all? The answer to that is likely to be the deciding factor in whether or not the UK has fallen into a technical recession.”

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