UK retail sales get biggest boost in three years

UK retail sales posted the biggest monthly rise in almost three years, adding to hopes the economy has turned a corner after slipping into recession last year.

The volume of goods sold in stores and online gained 3.4 per cent in January, the most since April 2021 when the country was emerging from lockdown, the Office for National Statistics said on Friday. Excluding the pandemic, it was the biggest increase in records going back to 1996. Economists had predicted a 1.5 per cent rise.

The rebound brings some relief to the retail sector after a dire December when sales plunged by 3.3 per cent, a drop that helped push Britain into a shallow recession. It adds to survey evidence showing a pickup in economic momentum as the worst cost-of-living crisis in a generation eases.

“Today’s release was stronger than expected and suggests the drag from higher interest rates on consumer spending is fading fast and points to the economy soon moving out of recession,” said Joe Maher, economist at Capital Economics.

The ONS said many retailers reported being boosted by January discounts. Sales rose across the sector during the month, with clothing stores the only exception. Supermarket food contributed most to the sharp rebound, which returned overall sales volumes to their November, 2023 levels, though they remain below where they were before the pandemic.

While sales fell 0.2 per cent in the three months through January, it was the strongest quarterly reading since August last year.

“Household goods stores, sports shops and department store retailers were amongst those reporting robust trading due to January sales promotions. A fall in prices at the pump also meant a solid month for fuel sales,” said Heather Bovill, deputy director for surveys and economic indicators at the ONS.

Signs of an upturn have left the Bank of England wary about cutting interest rates too soon, with several officials pointing to evidence of sticky inflation in the labor market and services sector. Markets are expecting the first reduction in August.

The latest retail sales figure prompted traders to trim bets on how many cuts the BOE will deliver in total this year. Two quarter-point reductions are baked in, with the odds of a third falling to 90 per cent on Friday after being fully priced Thursday. Those odds were as low as 40 per cent earlier in the week after stronger-than-forecast wage figures.

The pound, which initially strengthened following the sales data, is now down 0.1 per cent at $1.2584 and on course for a third weekly drop. UK government bonds are little changed. – Bloomberg