UK Retail Sales Falls 0.3% in December, GBP/USD Slides on BoE Rate Cut Bets

UK Retail Sales 5


Retail sales unexpectedly declined by 0.3% in December, reversing a modest 0.1% gain in November. Economists anticipated a 0.4% increase. Consumers tightened their purse strings amid labor market uncertainty and the elevated inflation environment.

According to the Office for National Statistics,

Non-store retailing and food store sales declined by 1.9% and 1.9%, respectively.
However, Textile Clothing & Footwear Store sales had the largest contribution, surging by 4.4%, while Department Store sales increased by 1.2% in December.
Retailers attributed rising Department Store and Household Goods sales to stronger Christmas sales.
Automotive fuel sales rose 1.6%.
Retail sales volumes declined by 0.8% quarter-on-quarter in Q4 2024 but were 1.9% higher compared with Q4 2023.

Will the Bank of England Cut Rates in February?

The pullback in retail sales could dampen demand-driven inflation, boosting expectations of a February BoE rate cut. Notably, the BoE kept rates at 4.75% in December, citing ongoing inflation concerns.

However, signs of cooling inflation have emerged. The UK annual inflation rate eased from 2.6% in November to 2.5% in December, with the core inflation rate dropping to 3.2%. Softer inflation has fueled bets on a February rate cut, with the UK economy also underperforming. In November, the economy expanded by 0.1%, below a 0.2% consensus.

Today’s retail sales further reinforce expectations of a more dovish BoE rate path. According to a January Reuters poll, all surveyed economists expect a 25 basis point February rate cut. 60% of economists predict the BoE will cut rates four times in 2025.

GBP/USD Reacts to the UK Retail Sales Report

The pound responded swiftly to the disappointing retail sales data. Ahead of the UK retail sales data release, the GBP/USD briefly climbed to a pre-report high of $1.22439 before falling to a low of $1.22054.



This article was originally published by a www.fxempire.com

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