After four consecutive months of declines, U.K. retailers reported a better start to the new year, with sales increasing; however, the sector’s future is still uncertain due to low consumer confidence and resurgent inflation.
The Office for National Statistics said on Friday that retail sales volumes in the United Kingdom increased 1.7% in January compared to December, after declining 0.6% in December. According to a Wall Street Journal poll, economists predicted that sales would increase by 0.9% this month.
Following declines in recent months, food store sales volumes increased 5.6%, the biggest increase since March 2020, according to the ONS.
But according to retailers, the rise was caused by more people eating at home in January. According to Capital Economics economist Paul Dales, this implies that restaurant owners lose out on the benefits made by merchants, and the net economic boost will be less than these numbers indicate.
Although U.K. consumer confidence increased slightly this month, according to data released on Friday, it is still at a low level and was probably boosted by the Bank of England’s interest-rate drop earlier in February. According to the ONS, sales did decline in the three months leading up to January and are still below prepandemic levels.
In other areas, inflation rose well beyond the central bank’s target rate in January, rising from 2.5% to 3.0%.
“The recent flatlining in employment and rebound in inflation may be offsetting the effects of the cuts in interest rates and holding back households’ willingness to spend,” Dales said.
