General view of a kiosk near Charing Cross station in London, England, on January 20, 2024. (Photo by Alberto Pezzali/NurPhoto via Getty Images)
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LONDON – Stronger-than-expected January retail sales provided a ray of light to Britain's beleaguered economy on Friday and suggested the country's recession will be short-lived, according to some economists.
Sales recovered 3.4% from December, according to the Office for National Statistics, the strongest monthly increase since April 2021. Economists polled by Reuters had expected more modest growth of 1.5%.
Sales volumes increased in all areas except lockdown, as grocery stores saw the biggest boost. Consumers “spent more for less in January”, the ONS said, with total paid up 3.9%.
The latest figures follow news on Thursday that the British economy entered a technical recession in the final quarter of 2023. Gross domestic product fell 0.3%, following a 0.1% contraction in the third quarter.
Sales during the key Christmas trading period were much weaker than expected, with December seeing the biggest monthly drop since January 2021.
Meanwhile, British retail sales remain 1.3% below their pre-pandemic level in February 2020, according to the ONS.
The “strong rebound in sales suggests the worst is behind us for the retail sector and falling inflation and rising wages in 2024 will provide a solid platform for recovery,” economist Joe Maher said in a note. Capital Economics assistant.
The increase also points to an easing of the drag on consumer spending due to higher interest rates as well as the economy moving out of recession territory, Maher said, but “there is still a long way for retailers to “recover their pre-pandemic highs.
Kris Hamer, insights director at the British Retail Consortium, said two months of higher sales volumes over the past three months were “promising” after 19 months of decline.
“However, shoppers remained cautious as we enter the third year of the high cost of living,” Hamer said, adding that an increase in business rates and new border control costs would weigh on the retail sector.
Despite the poor growth numbers, the retail report – along with stable inflation numbers and a healthy December jobs report – ended the week on a “half-positive note,” said Kallum Pickering, senior economist at Berenberg.
Anecdotal evidence from retailers suggests consumers held off in December but came out strong to benefit from January sales, he said.
“However, we must be cautious. The monthly data is volatile. The January jump simply offsets the large 3.3% month-on-month drop in December and therefore returns real sales to the November level,” Pickering said in a note.[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote
The new figures are consistent with a “disorderly stagnation” in the retail sector and broader economic activity over the past 18 months, although economists at Berenberg expect retail momentum to recover in the coming months due to higher real wages and consumer confidence, he added.
