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• The UK published weak December retail sales numbers.
• Retail sales crashed by 3.2% in December while core sales rose by 3.3%.
• These numbers mean that inflation is hurting consumption.

UK retail sales tumbled in December as the holiday season continued and as inflation remained stubbornly high. According to the Office of National Statistics (ONS), retail sales dropped by 3.2% in December after rising by 1.3% in the previous month. Economists were expecting the numbers to come in at -0.5% This performance translated to a YoY increase of drop of 1.2%

UK retail sales figures tumble

Meanwhile, the core CPI, which excludes the volatile food and energy products, crashed by 3.3%, leading to a YoY drop of 2.1%. These numbers are important because consumer spending is an important part of the British economy. They showed that sales tumbled to their lowest point since 2022.

They came two days after the ONS released strong inflation numbers. The report said that the headline CPI rose from 3.9% in November to 4.0% in December. Core CPI also rose by 5.1%, ending a downward trend that had been happening.

The UK has also published additional strong numbers. On Monday, Rightmove said that the asking prices of UK homes continued rising. Separate reports by Halifax and Nationwide showed that the house price index (HPI) jumped in December. The index has risen in the past three months straight.

British retailers have also done well as they outperformed their American peers like Walmart (WMT) and Target (TGT). Tesco (TESO), the biggest British retailer, is hovering near its all-time high of 303.6p. 

Similarly, Sainsbury’s and Marks and Spencer are at their record highs of 311p and 295p, respectively. In their Christmas update this month, all these companies said that their businesses thrived during the season.

Pressure on the Bank of England

These numbers will, therefore, put more pressure on the Bank of England (BoE). Like other central banks, the BoE has maintained a hawkish tone, pushing rates to a multi-decade high.

As such, I expect that the bank will be more forceful this year when making its interest rate decisions. This means that it will hold rates steady in the first half of the year and then start slashing them in the second half.

The expectation of a hawkish BoE explains why the GBP/USD pair has bounced back in the past three months. It has jumped by over 5.45% from its lowest point in November. On the other hand, British stocks have been under pressure, with the FTSE 100 and FTSE 250 erasing their YTD gains. The GBP/USD and EUR/GBP pairs remained steady after the report.

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