British retail sales rose by a stronger-than-expected 3.4% in January, according to official figures that showed signs of strength among consumers a day after data confirmed the country's economy entered a recession last year.
Economists polled by Reuters had forecast that sales volumes would increase by a median 1.5% on a monthly basis.
January's jump - the biggest since April 2021 - followed December's 3.3% fall, the most severe since January 2021.
'Stronger Than Expected'
"Overall, 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," Joe Maher, an economist with Capital Economics said.
Data published on Thursday showed Britain's economy slipped into a recession in the second half of 2023 but it is expected to grow moderately this year as inflation cools, wages rise and interest rates are forecast to fall.
"After a very weak December, retail sales rebounded in January with the largest monthly rise since April 2021," Heather Bovill, deputy director for surveys and economic indicators at the Office for National Statistics (ONS), said.
"This means that overall sales have now recovered to pre-December levels, although if we look at the broader picture, they are still below where they were pre-pandemic."
Sterling edged up against the dollar and euro after the data was published.
Sales Volumes
Compared with a year ago, sales volumes were 0.7% higher.
The ONS said food store sales rose by 3.4% in January after December 3.1% fall.
Clothes sales dropped 1.4% on the month, the only sub-category to fall in January, the ONS said.
Excluding petrol, overall sales volumes were up 3.2% in January from December.
Analyst Viewpoint
Commenting on the boost to January retail sales, Samantha Phillips, Partner at McKinsey & Company, said, “Retailers bagged the boost they were hoping for in January, after a disappointing December. The 3.4% monthly volume rise, coupled with a 3.9% value uplift was likely driven by heavy January sales activity. This uptick should be accepted cautiously, as we are likely to still experience a year of ups and downs.
“However, household budgets will remain under pressure and discerning consumers will remain mindful about where they hold back spending and where they splurge. Retailers may have to find new ways to appeal to consumers in a recessionary environment.
"With tactical cost-savings mostly exhausted, they will likely focus on share growth, whilst looking at fundamental business model shifts such as gen AI opportunities and data and loyalty programmes."
Additional reporting by ESM
