Surprise increase in retail sales lifts hopes of economic recovery

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SHOPPERS went on a spending spree last month, boosting retail sales to a level not seen since last year’s Royal Wedding and raising hopes that the UK will avoid a double dip recession.

Consumers splashed out on furniture and sporting goods in the sales, according to official data from the Office for National Statistics.

Retail sales volumes rose 0.9 per cent over the month to give an annual rise of 2.0 per cent, as stores lured in shoppers with hefty discounts on household goods and furniture.

Economists had predicted a monthly fall of 0.4 per cent last month and an annual rise of 0.5 per cent.

This compares with a monthly rise of 0.6 per cent in December, when many retailers took the exceptional move of discounting early in a bid to overcome the spending slump.

Economist Howard Archer at IHS Global Insight said: “This is a major surprise, and a very pleasant one.

“Given the key role of consumer spending, the unexpected and impressive 0.9 per cent jump in retail sales volumes in January is a massive boost to hopes that the economy has returned to growth... especially as it follows on from improved news on manufacturing and services activity in January.”

He added that it is likely that retail sales were lifted last month by consumers taking advantage of bargains in the clearance sales to purchase items that they would otherwise struggle to afford.

Much of last month’s growth was driven by internet sales and supermarkets, rather than traditional high street sales.

British Retail Consortium director general Stephen Robertson said: “These numbers are slightly better than we would have expected but make it clear that price-cutting by retailers is what’s driving any growth in business.

“Discounting is biting into retailers’ margins with non-food businesses facing particularly tough times.”

The figures produced by the ONS are seasonally adjusted because January is normally a weaker shopping period than December, but they show that sales volumes in January were two per cent higher than a year ago.

Excluding car fuel, volumes increased 1.2 per cent between December and January.

Analysts had expected sales volumes to fall in January because so many retailers started discounting before Christmas, sparking fears the normal January sales would have lost some of their appeal.

Household goods sales saw their first sales growth for nearly a year, up 4.8 per cent between December and January, as furniture stores put in a particularly strong performance with high levels of discounting.

The ONS also said there was anecdotal evidence that sportswear retailers had enjoyed a strong month.

The figures revealed that January’s store prices were 2.2 per cent higher than a year ago, the smallest rise since November 2009, as shoppers benefited from falling inflationary pressures and price cuts in the January sales.

Every sector apart from clothes stores reported a slower rate of price increases than the previous month.

Dr Archer said a key question for the economy is how well will consumers keep spending now.

He said: “It still remains highly likely that consumers will curtail their spending after splashing out over Christmas and the clearance sales, but will they really hunker down or keep things ticking over?

“While consumers appear to have more life in them than we thought, it currently remains hard to see them being anything else other than careful in their spending over the next few months at least.”

Economist Samuel Tombs, at Capital Economics agreed, saying there are reasons to believe the strong growth cannot be maintained.

“January’s strong growth goes against the much more pessimistic picture painted by anecdotal evidence and all of the retail surveys.

“Accordingly, the official figures may not be giving a true reflection of conditions on the high street.

“With unemployment on an upward trend, credit conditions tightening and real incomes still being squeezed, the underlying conditions for consumers are still tough.”

Many consumers have been cutting back on spending over the past year as inflation has outpaced wage rises.

Higher unemployment has also weighed on confidence and the lack of consumption has been one of the main drags on economic growth.