British consumers failed to increase their spending for a record fifth month in a row in December, adding to signs of economic weakening that might prompt the Bank of England to cut interest rates this month.
Official data on Friday showed sales volumes fell by 0.6% from November, defying the median forecast for a rise of 0.5% in a Reuters poll of economists.
Sales in monthly terms have not risen since July, the longest such run since records began in 1996, the Office for National Statistics said, adding that food sales fell by the most in three years.
Sterling weakened and British government bond prices rose as investors increasingly bet on the Bank of England cutting rates on Jan. 30, at the end of its next meeting.
Two of its nine policymakers voted in November and December for a cut and three others, including Governor Mark Carney, have said lower borrowing costs might be needed soon.
Friday’s figures are the first hard data that suggest a bounce in consumer sentiment since Conservative Prime Minister Boris Johnson’s landslide election win on Dec. 12 might not have fed through into actual spending.
“December’s outright fall in retail sales, despite a potential boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the Monetary Policy Committee closer still to cutting rates at the end of the month,” said Thomas Pugh, an economist at Capital Economics.
“But the election and the removal of some uncertainty could represent a turning point for the economy. Indeed, there are signs that sentiment has already turned up. As a result, January might not be quite as bad.”
Allan Monks, a JP Morgan economist, said the weak picture of the economy in late 2019 meant surveys of businesses for January due next week would have to send a very clear signal of an imminent improvement to prevent a rate cut on Jan. 30.
Annual growth in retail sales volumes dropped to 0.9%, below all forecasts in the Reuters poll.
The also ONS revised down its sales data for November. In the fourth quarter as a whole, it found that volumes fell by 1.0%, their worst performance since early 2017.
The survey period ran from Nov. 24 to Dec. 28, including the Black Friday and Cyber Monday sales promotions and the Dec. 12 election.
The election outcome eliminated the risk of a disruptive no-deal Brexit as soon as Jan. 31, and there have been some signs of a bounce in confidence among consumers and companies since then.
But a hit to trade remains possible at the end of 2020, when Johnson insists a post-Brexit transition period will end, regardless of whether he can negotiate a trade deal with the European Union before then.
Consumer demand has been a strong point of the economy since voters decided to leave the EU three-and-a-half years ago. But more recently it has started to soften, despite low unemployment and modest inflation, which have boosted household incomes.
An industry group, the British Retail Consortium, said last week that sales in 2019 as a whole had fallen for the first time since its records began in 1995.
Retailers reported a subdued Christmas season while Sainsbury’s (SBRY.L) and Marks & Spencer (MKS.L) have said they are not expecting a bounce in consumer spending in 2020.