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Retail sales in Great Britain rebounded in January following a slump in December, suggesting the economy has picked up some momentum after a weak end to 2023.
Sales volumes jumped by 3.4 per cent in January, following a revised fall of 3.3 per cent in December 2023, according to figures published by the Office for National Statistics on Friday.
It was the biggest monthly increase since April 2021, the ONS said, taking volumes back to the level of November 2023.
The numbers suggest the economy is starting to shrug off some of the weakness seen at the end of 2023, when the UK slipped into a technical recession. Lower inflation coupled with firm wage growth should permit household spending to pick up in the coming months, economists said.
“The strong pick-up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” said Joe Maher at research company Capital Economics.
But the data still points to an economy that is in a sluggish state. Sales volumes remain 1.3 per cent below their pre-pandemic level in February 2020. Compared with this time last year, they are up by 0.7 per cent.
Official figures showed on Thursday that UK gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, pulling the country into a technical recession.
The GDP figures provided a harsh backdrop to chancellor Jeremy Hunt’s upcoming Budget, as the Conservative government seeks to generate a lift in opinion polls via tax cuts.
January’s increase in retail sales, which was driven by food stores, exceeded the 1.5 per cent month-on-month rise forecast by economists in a Reuters poll. Volumes rose in all areas except clothing stores, with some retailers reporting improvements driven by January sales, the ONS said.
Thomas Pugh, economist at audit firm RSM UK, said the bounce in January sales volumes suggested the technical recession at the end of 2023 would not extend into 2024.
“While January’s pace of growth is unlikely to be maintained there are plenty of reasons to expect retail sales volumes to gradually recover this year,” he said, pointing to projections that inflation — now at 4 per cent — would be back at the Bank of England’s 2 per cent target by the summer.
“This will kick-start a consumer-spending led recovery that should feed through into growing retail sales and see the economy finally return to growth,” Pugh added.
Andrew Bailey, BoE governor, suggested this week that the UK was seeing signs of an economic “upturn” after the weakness at the end of last year.
The central bank’s latest forecasts pointed to a “somewhat stronger growth story” ahead, Bailey said, while cautioning that trends in productivity and investment meant there was still a “very constrained” supply side of the economy.
