UK retail sales rally in January, beat expectations

UK retail sales rebounded sharply in January, official data showed on Friday, reversing December’s slide.

According to the Office for National Statistics, retail sales volumes rose by 3.4% last month, following a downwardly-revised fall of 3.3% in December.

It was the largest monthly rise since April 2021, and comfortably above analyst forecasts for a 1.5% increase.

Both food and non-food sales strengthened. Food store sales volumes jumped 3.4% over the month, or by 0.6% over the year, recovering from December’s record 3.1% slide.

Non-food store sales rose 3%, in contrast to December’s 3.9% fall.

In the three months to January, total sales volumes eased 0.2% on the previous quarter, the smallest decline since August.

Heather Bovill, deputy director for surveys and economic indicators at the ONS, said: "Overall sales have now recovered to pre-December levels, although if we look at the broader picture, they are still below where they were pre-pandemic.

"Sales increased across nearly all retail sectors, and it was a particularly strong month for supermarkets. A fall in prices at the pump also meant a solid month for fuel sales.

"Clothing shops were the only area not to see growth this month."

December is traditionally one of the busiest, and most important, months of the year for the retail sector.

However, hard-pressed consumers carried out much of their Christmas shopping in November last year, to take advantage of Black Friday discounts.

Kallum Pickering, senior economist at Berenberg, said: “The bounce far exceeded consensus expectations. It is consistent with the strong series PMI in January as well as rising consumer confidence, and adds to evidence that the economy was expanding at the start of the year.

“The data also chime with anecdotal evidence from retailers that consumers seemed to hold back more than usual in December but have returned in droves in January.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “A consumer-led recovery is starting to take hold. Sales volumes in January were 1.6% above their fourth-quarter average, so it is highly likely they will rise on a quarter-to-quarter basis in the first quarter.

“The near-term outlook for growth in real household disposable income looks bright, suggesting retail sales will trend higher over the coming months.”

Martin Beck, chief economist advisor to the EY Item Club, said: “The prospect of a rise in mortgage payments for 1.5m households this year as they refinance on to higher rates, plus the drag from fiscal policy via the freeze in income tax thresholds, presents barriers to a further revival in retail spending.

“But [we] think the positives facing retailers should be sufficient to offset these challenges.

“After two successive years of decline in sales volumes, January’s performance reinforces [our] expectation that 2024 should see a return to growth.”