UK retail sales rise more than forecast in January, ONS reveals

Sales jumped 5.2% in January compared to the same month a year ago, beating analysts’ estimates for a 3.4% increase.

On the month retail sales rose 2.3% in January, surpassing forecasts for a 0.7% gain.

“After an underwhelming Christmas for British retail, economists will be encouraged to see the sector return to growth in January," said Dennis de Jong, managing director at UFX.com

“British consumers are a key driver of the economy at a time when external demand has been weak, and fortunately big-ticket items such as furniture and electricals appear to have been on plenty of January shopping lists."

A record high in employment and low inflation provided a boost to consumer spending last month, according to Howard Archer, chief UK and European economist at IHS Global Insight. Employment rose 205,000 in the three months to December although wage growth slowed to 1.9% from 2%, official data showed on Wednesday.

"Amid the recent heightened concerns over the UK economy, this is a major boost to first quarter GDP growth prospects," Archer said.

"However, it will be tempered by concern that the UK economy remains unbalanced and too dependent on consumer spending and the services sector."

Looking ahead, Archer said much will depend on the outcome of earnings growth over the coming months.

The Bank of England earlier this month cut its forecast for salary raises. The central bank said it now expects average weekly earnings to increase by 3% this year, down from the 3.75% it predicted three months ago.

"Nevertheless, we still think it is likely that a tightening labour market and appreciable recruitment difficulties in some sectors will sooner or later lead to earnings growth gradually picking up anew over the coming months," Archer said.

"The introduction of the National Living Wage from April will also have an upward impact on earnings growth."