Retail sales rise 1.2% as households eat at home more

Retail sales rise 1.2% as households eat at home more

24 Mar    Finance News, News

Retail sales volumes beat expectations to rise by their biggest margin in months to return to pre-pandemic levels in February.

Sales rose by 1.2 per cent in February, the largest monthly growth since October, after a revised 0.9 per cent rise in January, according to new figures published by the Office for National Statistics.

Strong sales in discount department stores pushed up non-food sales by 2.4 per cent and food sales rose 0.9 per cent as cost of living pressures prompted shoppers to cut down on eating at restaurants and instead buy more food to eat at home.

Sales volumes, however, fell in the three months to February compared with the previous three-month period and remain 3.5 per cent lower than in February last year.

City economists had predicted a 0.2 per cent rise in sales in February, which would have represented a decline of 4.7 per cent compared with the same period in 2022.

The volume of sales has followed a general trend of decline since summer 2021 but the value of sales has risen as inflation remains close to its highest level in decades.

Inflation is thought to have peaked at 11.1 per cent last October,its highest level in 41 years. The headline rate fell for three consecutive months to reach 10.1 per cent at the start of the year before a surprise increase to 10.4 per cent in February. It is expected to have more than halved by the end of the year.

Retail sales are seen as an early indicator of economic activity before gross domestic product (GDP) figures for January, which will be published next month.

Strong growth at the start of the year has reversed the 1.3 per cent monthly decline in retail sales recorded in December

Fuel sales fell by 1.1 per cent after a 1.1 per cent rise in January, when train strikes boosted car travel.

Gabriella Dickens, senior UK economist at the Pantheon Macroeconomics consultancy, said: “The outlook for retail sales has improved since the budget, when the government scrapped planned increases in both the energy price guarantee and fuel duty. These U-turns have averted a 1 per cent hit to households’ disposable incomes in [the second quarter]. Many households also will see some relief in April when benefits, including the state pension, rise by 10.1 per cent and the National Living Wage increases by 9.7 per cent.

“Other fiscal actions in April, however, will impede growth in disposable incomes; the basic and higher rate thresholds for income tax will be frozen; the threshold for the additional rate of income tax will be reduced to £125,000, from £150,000, and the £67-a-month energy bill support scheme grant will be withdrawn.”

Ashley Webb, UK economist at Capital Economics, said that any rise in retail spending could be compensated by a fall in non-retail spending. “At face value, these data further add to the view that the recent resilience in activity is still holding up, but when households’ finances are under pressure it is possible that any improvement in retail sales will just be met by a softening in non-retail spending (such as restaurants),” she said. “And although the worst of the falls in real household incomes are in the past, the full drag on activity from higher interest rates has yet to be felt.”

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