The recovery of the UK retail sector provides a ray of light for the recession-hit country

LONDON – Stronger-than-expected January retail sales provided a glimmer of light for Britain's faltering economy on Friday – and suggest the country's recession will be short-lived, according to some economists.

Sales rebounded 3.4% from December, according to the Office for National Statistics, the strongest monthly increase since April 2021. Economists polled by Reuters had expected a more modest growth of 1.5%.

Sales volumes increased in all regions except lockdown, with food stores seeing the largest increase. The Office for National Statistics said consumers “spent more for less in January”, with their total spending rising by 3.9%.

The latest figures follow news on Thursday that the British economy has entered a technical recession in the final quarter of 2023. GDP fell by 0.3%, after a 0.1% contraction in the third quarter.

Sales during the key holiday trading period were much weaker than expected, with December seeing the largest monthly decline since January 2021.

Meanwhile, British retail sales remain 1.3% below their pre-pandemic level as of February 2020, according to the Office for National Statistics.

“The strong rise in sales suggests that the worst is now behind the retail sector, and lower inflation and rising wages in 2024 will provide a strong platform for recovery,” Joe Maher, assistant economist at Capital Economics, said in a note.

The rise also signals a fading impact on consumer spending due to higher interest rates, as well as the economy emerging from recession territory — but “there is still a long way to go for retailers” to return to their pre-pandemic highs, Maher said.

Chris Hammer, director of insight at the British Retail Consortium, said two months of rising sales volumes over the past three months were “promising” after 19 months of decline.

“Despite this, shoppers remain wary as they enter the third year of rising costs of living,” Hammer said, adding that rising business rates and new border control costs would impact the retail sector.

Calum Pickering, chief economist at Berenberg, said that despite the weak growth numbers, the retail report – along with flat inflation numbers and a good December jobs report – ended the week “on a semi-positive note”.

He said anecdotal evidence from retailers suggested that consumers held back in December, but came out strong to benefit from January sales.

“However, we have to be careful,” Pickering said in a report. “Monthly data is volatile. January’s jump only offsets the significant 3.3% decline (month-on-month decline in December) – thus bringing real sales back to the November level.” “). NB.[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote

He added that the new figures are consistent with a “random stagnation” in the retail sector and with broader economic activity in the past 18 months, although economists at Berenberg expect retail momentum to rebound over the coming months due to rising real wages and consumer confidence.