U.K. retail sales rose 0.4% in December, beating economist expectations for a flat month. The annual increase of 2.5% also topped forecasts, rebounding from November's revised 1.8% gain. This strong performance follows four months of declines in 2024, suggesting consumers finally released pent-up spending after the Autumn Budget uncertainty.

The surge gives the Bank of England's Monetary Policy Committee fresh data ahead of its February 5 rate decision. Policymakers already cut the benchmark rate by 25 basis points to 3.75% in December, with a narrow 5-4 vote. Inflation concerns, however, have made some members wary of further cuts despite the growth signal.

Analysts attribute the spending rebound to post-budget clarity, though inflation hit 3.4% annually in December—higher than expected. Economists don't see this as the start of a sustained upward trend, citing one-off factors like Christmas flight costs and tobacco tax increases. The BoE must now balance this consumption strength against persistent inflation risks.