UK retail sales unexpectedly rebound in January

Retail sales in the UK rose in January in an unexpected sign of consumer resilience as Christmas rebates boosted online sales and fuel prices fell further, official data showed on Friday.

The volume of retail sales, or the amount of goods sold in UK stores, rose 0.5 percent between December and January, after a revised 1.2 percent drop in the previous month, according to the Office for National Statistics.

“The retail industry is entering a period of transition as inflation eases and consumer confidence shows the first signs of improvement,” said Oliver Vernon-Harcourt, head of retail at Deloitte.

The reading came in above the 0.3 percent drop forecast by economists polled by Reuters and marked a rebound in sales after two consecutive months of decline.

However, compared to January 2022, which is a less volatile metric, sales volumes still declined 5.1 percent, the tenth consecutive month that they declined on an annualized basis.

Despite this decline, the value of retail sales — the amount of money consumers spent — rose 4.1 percent year-on-year as higher prices meant consumers could buy less with their money.

Annual CPI inflation fell to a five-month low of 10.1 percent in January, the ONS said on Wednesday, falling further from October’s peak of 11.1 percent.

“Consumers’ real incomes are likely to take another hit over the next six months as inflation remains well above wages, more households are forced to take out mortgages at much higher rates and some government support is withdrawn,” Thomas Pugh said , Economist at RSM UK.

“Therefore, we suspect that retail sales will resume their downward trend in the first half of this year,” he added.

The month-to-month increase in overall sales volume was driven by a 3.6 percent rebound in “other stores,” indicating strong growth in departments like cosmetics, furniture and jewelry.

Sales volume at out-of-store retailers, mostly online sellers who don’t have a physical store, increased 2 percent in the month of January.

January promotions supported online sales, which have been generally down since early 2021, when the UK economy reopened after the Covid-19 lockdown and people were able to shop in stores again.

In addition, “fuel sales have risen over the last month as prices at pumps continue to fall,” said Darren Morgan, ONS director of economic statistics.

Fuel sales volumes rose 1.7 percent in January, after rising 0.3 percent the previous month, as average fuel prices fell to their lowest level since February 2022.

Meanwhile, grocery sales fell 0.5 percent in the month to January, marking the fifth drop in seven months, as high grocery prices prompted people to limit the amount they bought.

“It is too early to conclude that the retail sector is coming out of its impasse and the economy will not slide into recession just yet,” said Paul Dales, UK chief economist at Capital Economics.

“The full impact of higher interest rates on activity has yet to be felt,” he added.