U.K. retail sales recorded a strong monthly rebound in December, signaling a return to consumer spending after weeks of uncertainty surrounding the government’s budget. The pickup offers important insight for policymakers at the Bank of England ahead of its next interest rate decision.
Retail sales rose 0.4% month on month, reversing November’s decline, according to figures published Friday by the Office for National Statistics. The increase exceeded market expectations, as economists had forecast flat monthly growth.
On an annual basis, retail sales jumped 2.5%, accelerating from a revised 1.8% rise in November. The previous estimate for November had initially shown growth of just 0.6%, underscoring the strength of December’s improvement.
Analysts said consumer caution earlier in the quarter was largely driven by uncertainty following the Autumn budget presented by Chancellor Rachel Reeves. Proposed tax increases to fund higher public spending—particularly in welfare and public services—had weighed on household confidence before spending picked up at year-end.
Michael Hewson of MCH Market Insights noted that retail sales fell sharply in October and November as consumers held back amid policy uncertainty. He added that similar concerns over the government’s economic direction contributed to sales declines in four of the final five months of 2024.
The Bank of England cut its benchmark interest rate by 25 basis points to 3.75% in December, following a narrow 5–4 vote by the Monetary Policy Committee, in an effort to support economic growth.
However, the outlook for further rate cuts remains uncertain. Policymakers remain divided due to lingering inflation risks, especially after data earlier this week showed U.K. inflation rising for the first time in five months.
Annual consumer price inflation climbed to 3.4% in December, exceeding expectations. Even so, analysts believe the increase is unlikely to signal a sustained upward trend, pointing instead to temporary factors such as higher holiday travel costs and a tobacco tax hike announced in the budget.
The Bank of England’s next policy meeting is scheduled for February 5, where officials will reassess the balance between economic growth and inflation pressures.
