British retail sales hold steady in February

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British retail sales beat analysts’ expectations of a contraction and remained flat last month, as growth in clothing purchases offset falling food sales.

The quantity of goods bought in Great Britain was unchanged between January and February following a 3.6 per cent increase in the previous month, the Office for National Statistics said on Friday.

Economists polled by Reuters had forecast a 0.3 per cent drop, with many citing the impact of wet weather. The better than expected reading, on the back of strong growth in January, adds to signs of the UK economy recovering from last year’s technical recession.

Heather Bovill, ONS senior statistician, said clothing sales had rebounded after recent falls as people invested in the new season’s collections. But “these were offset by falls in fuel sales, possibly affected by rising prices, and a reduction in food sales”, she added.

Online sales increased, particularly for clothing retailers, as wet weather hit footfall. The statistics agency said it also affected food sales.

According to the Met Office, the UK’s national weather service, last month was a wetter than average month, with the south of England experiencing its wettest February since the data series began in 1836.

Analysts said the flatlining of retail sales despite the wet weather was a good sign for the economy, pointing to some resilience since Britain entered a technical recession after two consecutive quarters of economic contraction in the second half of last year.  

“Unchanged retail sales volumes in February, as shoppers largely shrugged off the unusually wet weather, provided further evidence that a rebound in retail activity, and perhaps the wider economic recovery is under way,” said Alex Kerr, economist at research company Capital Economics. “And as inflation continues to fall, rising real household incomes should support retail activity throughout 2024.”

Rob Wood, economist at consultancy Pantheon Macroeconomics, predicted that retail sales volumes were on track to “rebound strongly in Q1, helping the economy leave last year’s recession behind”.

“If overall retail sales volumes hold flat in March they will rise 1.7 per cent quarter-to-quarter in Q1, the strongest since the post-lockdown surge in the summer of 2021,” he added.

The ONS figures come as separate data published on Friday by research company GfK showed UK consumers’ confidence in their personal finances in the year ahead had turned positive for the first time in more than two years.

Andrew Bailey, Bank of England governor, told the Financial Times this week that Britain had “an increasingly positive story to tell on” taming inflation after official data showed price growth fell to 3.4 per cent in February, its lowest since 2021.

Noting that cuts to the BoE’s benchmark interest rate — now at 5.25 per cent — were “in play”, Bailey added that the technical recession last year was small and that there were signs of an upturn in train.

Sales volumes fell by 0.4 per cent in the three months to February compared with the previous quarter, according to the ONS, and by 1 per cent compared with the three months to February 2023, reflecting the impact of the cost of living crisis and high interest rates.

Sales volumes last month were also 1.3 per cent below their pre-pandemic level, although consumers spent 18.5 per cent more than in February 2020 as high prices reduced purchasing power.

Charlie Huggins, head of equities at investment broker Wealth Club, said the “economic tea leaves read less grimly” after the fall in inflation and rise in expectations of rate cuts.

“Perhaps most importantly, real wages are rising and this is putting more money into consumers’ pockets,” he added.