Retail sales in the United Kingdom unexpectedly declined in November, missing economist forecasts and signaling continued consumer caution as the economy slows. The Office for National Statistics (ONS) reported that the total volume of goods sold, both online and in stores, fell by 0.1% for the month. This followed a revised 0.9% plunge in October, and contrasted with economists' expectations for a 0.3% increase.
The data reflects a subdued consumer mood, attributed to slowing economic growth, rising unemployment, and households prioritizing financial stability over discretionary spending. The period was also overshadowed by Chancellor Rachel Reeves' second budget, which unveiled additional tax increases on top of a £40 billion package announced in October 2024. Analysts suggest this fiscal tightening and the associated uncertainty contributed to household restraint. Paul Dales of Capital Economics noted that while the budget may have dampened spending, weak employment and slowing wage growth are more significant, longer-lasting factors.
External factors also played a role, with stormy weather contributing to a 1.2% year-on-year decline in high street footfall, according to the British Retail Consortium (BRC). The ONS cited this low footfall as a reason for a fourth consecutive monthly drop in supermarket sales.
Despite the Bank of England cutting its key interest rate to 3.75% this week to support the economy, the move has yet to revive consumer confidence. The BoE's regional agents report that spending on goods and services has stagnated and is unlikely to recover soon. Public finances underscore the strain, with government borrowing in November reaching £11.7 billion, exceeding forecasts of £10 billion.
In a related analysis, global asset manager PIMCO provided commentary on the UK's fiscal outlook. Senior Vice President Peder Beck-Friis suggested the government is likely to maintain fiscal restraint, which should gradually reduce the deficit. He argued that financial markets may be overestimating the necessary terminal interest rate, as inflation and growth appear more subdued than anticipated. PIMCO's Chief Investment Officer for Global Fixed Income, Andrew Balls, highlighted that UK government bonds (gilts) offer attractive value compared to US Treasuries, due to expected fiscal discipline and the potential for further Bank of England rate cuts as inflation declines.
