UK retail sales rose more than economists forecast in December, led by a surge at department stores and smaller shops during the key Christmas season.

Sales including fuel increased 2.6 per cent from November, the Office for National Statistics said today in London. That’s the strongest December since records began in 1996. The median forecast of 22 economists in a Bloomberg News survey was for a 0.3 per cent gain last month.

Department stores posted a record 8.7 per cent increase in sales. The annual gain in sales was the biggest in nine years.

The data contrasts with Christmas reports from some of Britain’s biggest retailers, including Tesco and Marks and Spencer Group , which reported reduced sales. The ONS explained this by saying the growth in overall sales in December was boosted by smaller stores.

The retail report may counter some pessimism about the economy in the fourth quarter after weak data earlier this month showing industrial production stagnated in November and construction fell. Gross domestic product rose 0.8 per cent in the third quarter.

“This is not about to propel GDP up to above 1 per cent in the fourth quarter,” said Alan Clarke, an economist at Scotiabank in London. “Nonetheless it is a helpful outcome in the face of the dive in construction.”

From a year earlier, retail sales rose 5.3 per cent, the most since October 2004. On a non-seasonally adjusted basis, sales at large stores rose 2.6 per cent from a year earlier, with smaller stores - companies with less than 100 employees - up 8.1 per cent. While Britain’s economy is strengthening and inflation is cooling, wage growth remains subdued, keeping a squeeze on consumers.

Excluding car fuel, retail sales increased 2.8 per cent in December from November and were up 6.1 per cent compared with a year earlier, today’s report showed. (Bloomberg)