UK Retail Sales Rise For First Time In 4 Months

UK retail sales increased for the first time in four months in February despite high inflation squeezing purchasing power of consumers.

The retail sales volume grew 1.4 percent month-on-month in February, reversing a 0.5 percent fall in January, the Office for National Statistics said Thursday.

This was the first increase in four months and exceed the expected growth of 0.4 percent.

The latest retail sales figures will provide some reassurance that higher inflation has not brought growth in consumer spending to a complete halt, Paul Hollingsworth, a UK economist at Capital Economics, said.

That said, the outlook for spending this year is certainly weaker than in 2016, the economist added.

However, the underlying pattern as suggested by the three month-on-three month movement decreased by 1.4 percent for the second month in a row. This was the largest decrease since March 2010 and only the second fall since December 2013.

It looks highly likely that retail sales volumes will contract over the first quarter - and very possibly markedly, IHS Markit economist Howard Archer said. Sales volumes will need to grow 3.2 percent month-on-month in March just to have been flat quarter-on-quarter.

Excluding auto fuel, retail sales volume climbed 1.3 percent in February from the prior month, in contrast to a 0.3 percent fall in January. Sales were expected to grow 0.3 percent.

Food store sales edged up 0.1 percent and non-food store sales climbed 1.8 percent in February after easing 0.3 percent each in January. Auto fuel sales recovered in February, up 2.9 percent.

On a yearly basis, the retail sales volume growth accelerated to 3.7 percent from 1 percent in January. This was also faster than the expected 2.6 percent.

The annual growth in sales volume, excluding auto fuel, improved to 4.1 percent from 2.1 percent. Economists had forecast a 3.2 percent rise.

Bank of England Deputy Governor Ben Broadbent said Thursday the negative effects of the currency weakness on consumption are expected marginally to outweigh its more positive effects on other parts of demand.

The policymaker noted that the weakness in sterling represents a sweet spot for exporters, but it is unlikely to last indefinitely.

The Distributive Trades Survey published by the Confederation of British Industry on Thursday revealed that UK retailers reported a steady pace of expansion in sales volume in March and forecast it to accelerate in April.

The retail sales balance came in at +9 percent in March, the same as in February, but well above the expected level of 4 percent.