Retail sales in the U.K. increased at the fastest pace in nine months in January, defying economists' forecast for a contraction. However, high unemployment and concerns over global economic developments is likely to continue weighing on consumers' spending intentions.
The Office for National Statistics said Friday that retail sales volume including auto fuel advanced 0.9 percent month-on-month. Sales grew for a second consecutive month, and was in contrast to economists' forecast for a 0.3 percent decline.
On a yearly basis, sales climbed 2 percent in January, faster than the 0.5 percent consensus forecast. The statistical office said that trade was driven primarily by non-store retailing, other stores, and predominantly food stores.
The jump in retail sales volumes in January is a massive boost to hopes that the economy has returned to growth following the fourth quarter contraction of 0.2 percent, especially as it follows on from improved news on manufacturing and services activity in January, IHS Global Insight Chief Economist Howard Archer said.
The squeeze on consumers' purchasing power eased as inflation fell to a 14-month low of 3.6 percent in January from 4.2 percent in December. Releasing the Inflation report on Wednesday, Bank of England policymakers said the rate is likely to undershoot the 2 percent target in two years.
Meanwhile, the central bank also indicated that the path of recovery for the economy will be "slow and uncertain." According to the latest official data, the unemployment rate reached a 16-year high in the December quarter, while jobless claims continued to rise at the start of 2012.
"With unemployment on an upward trend, credit conditions tightening and real incomes still being squeezed, the underlying conditions for consumers are still tough," said Samuel Tombs, an economist at Capital Economics.
The statistical office said today that retail sales volume excluding auto fuel advanced 1.2 percent, and it confounded a 0.3 percent fall expected by economists. Annually, sales volume gained 1.9 percent, but economists were looking for a 0.1 percent decline.
According to a survey published by the British Retail Consortium this month, U.K. retailers faced their second-worst January since the survey began in 1995 as consumers concentrated more on savings and paying off their debt.
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