Hitler decision was a political decision. He thought that France was the first target and UK without France had come to an agreement with Germany. Allowing the UK units to retreat was some sort of goodwill act.
A thing that is important to remember when evaluating Hitler strategic thinking are his experiences of the First Worl War.
Hitler volunteered in the German Army. He participated in a number of major battles on the Western Front, including the First Battle of Ypres, the Battle of the Somme, the Battle of Arras and the Battle of Passchendaele. Hitler was twice decorated for bravery. He received the Iron Cross, Second Class, in 1914 and Iron Cross, First Class, in 1918, an honour rarely given to a Soldier.
Those experience influenced the strategic thinking of Hitler. Seeing the trench war has formed in Hitler the convinction of the importance of not giving ground to the enemy and the superiority of the defense on the offense. In WW II Hitler has alwasy been doubtful of the mobile warfare preferring to hold ground with fortified defensive line and “Fester Platz” (Fortified City).
Back on topic of Dunkirk, Hitler has been convinced by his War Experience that if French Army is put out of action then UK alone have no way to fought a land war with Germany, no UK invasion is needed and an agreement with UK will be the natural consequence. So in his belief there is no need of destroying a retreating Army that will be useless to UK.