Quick Data Overview: December Rebound, but Quarterly Trend Remains Sluggish
The UK Office for National Statistics (ONS) announced that the retail sales index showed a 0.4% month-on-month increase in retail sales volume in December 2025, reversing a 0.1% decline in November; the year-on-year growth rate was 2.5%. However, looking at the quarterly perspective, retail sales in the fourth quarter of 2025 still fell by 0.3% compared to the third quarter, indicating that the year-end revival was not enough to counteract the overall weakness.
The ONS also noted that retail sales volume remains approximately 1.5% below February 2020 levels (pre-pandemic), indicating that structural recovery is insufficient.
Structural Changes: Online Revival, Non-food Under Pressure
Sector analysis shows that December's rebound was mainly driven by non-physical channels. The ONS highlighted that non-store retail rebounded after weakness in October and November, with some online jewelers reporting a rise in demand for precious metals in December; meanwhile, sales at non-food stores still fell by 0.9% for the month.
Online indicators also showed improvement: December's online sales rose 1.8% month-on-month and 11.1% year-on-year; the proportion of online sales of total consumption increased from 28.0% in November to 28.3% in December.
Expectation Gap and Policy Implications: Adds Material for the Bank of England, but Not a Shift
The market's focus on December's data is on the "expectation gap." A Reuters survey showed that economists generally expected a slight decline in December retail, around -0.1%, but the actual result was an increase, which can be interpreted as resilience in consumer spending.
However, the policy aspect is not simple: The Bank of England lowered the benchmark interest rate by 25 basis points to 3.75% in December 2025, with the decision passing by a narrow 5 to 4 vote, reflecting significant internal committee disagreements on inflation stickiness; the next interest rate decision is scheduled for February 5, 2026.
Inflation and Rate Cut Path: February More of an "Observation Window"
The latest inflation data has escalated policy uncertainty. Reuters reported that the UK CPI rose to 3.4% in December (previous value 3.2%), mainly driven by factors like airfare and tobacco; although many economists see this as more of a "speed bump" rather than the start of a new inflationary cycle, it is enough to make the Bank of England more cautious in the short term.
Against this backdrop, some institutions have postponed their expectations for the next rate cut from February to March, noting that the market is still pricing in some rate cuts within the year.
