Shock drop in shop sales adds to fears over UK economy

Economists said the retail sales figures on Friday capped off a “disappointing” end to 2024 for the sector, in a period businesses typically seek to make the most money to see them through quieter trading months.

“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.

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

But he added it was “not a sign of things to come”.

“We doubt the economy’s recent malaise will continue,” he said, adding that he expected the households’ disposable income would grow this year which would boost consumer spending.

In its latest World Economic Outlook, the IMF forecast the UK’s economy would grow by 1.6% in 2025, an upgrade from the 1.5% it predicted in October last year.

The global economic body also predicted the UK would see growth outstrip fellow European economies in Germany, France and Italy over the next two years.

Following the forecast, Reeves highlighted that the UK was the only G7 economy, apart from the US, to have its growth forecast upgraded.

However, many businesses have criticised the chancellor’s 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”.