According to several economists, the British economy may not remain in recession for long as the Office for National Statistics reported a stronger-than-expected increase of 3.4% in retail sales for January.
This marks the highest monthly gain since April 2021 and surpasses the predicted growth of 1.5% by Reuters. Sales saw an increase in all sectors except closing, with food shops experiencing the biggest boost.
The ONS noted that consumers spent more for less, with a 3.9% rise in total paid. This news follows the announcement that the UK economy entered a technical recession in the last quarter of 2023, with a 0.3% decline in Gross Domestic Product.
The key holiday trading period saw weaker sales than anticipated, with December experiencing the biggest monthly drop since January 2021. According to the ONS, British retail sales are still 1.3% lower than pre-pandemic levels from February 2020.
Capital Economics’ assistant economist, Joe Maher, believes that the significant increase in sales suggests a recovery for the retail sector, with the potential for rising wages and falling inflation in 2024 to further aid in its recovery.
However, there is still a long way to go for retailers to reach their pre-pandemic levels. Kris Hamer, director of insight at the British Retail Consortium, also sees promise in the two months of increased sales volumes after 19 months of decline.
However, he notes that shoppers remain cautious due to the high cost of living and the impact of business rates and border control costs on the retail sector.
3. The retail sector sees gradual improvement with rising wages and confidence.
Despite the poor growth figures, the retail report, along with steady inflation and a strong December jobs report, ended the week positively, according to Berenberg senior economist Kallum Pickering.
While the jump in January sales may seem significant, Pickering warns that monthly data can be volatile and that the increase only offsets the significant drop of 3.3% in December, returning sales to November levels.
Berenberg economists anticipate a gradual pick-up in retail momentum in the coming months due to higher real wages and consumer confidence.
In other news, a 40-year-old millionaire who had retired early returned to work after just five months, demonstrating the impact of the current economic climate.
