January's jump in sales was the biggest since April 2021 and followed a 3.3% fall in December.
ADVERTISEMENTThe pound moved higher on Friday morning after the latest UK retail sales came in stronger than expected, suggesting that the UK economy's current recession may be short-lived.
Month-on-month retail sales for January 2024 rose 3.4% from December's 3.3% fall, stronger than the 1.5% increase that analysts had predicted. It was also the biggest jump since April 2021.
Sales were boosted by gains in every sub-sector except clothing, according to the data from the Office for National Statistics.
Meanwhile, year-on-year retail sales inched up 0.7% in January from -2.4% in December, beating analyst expectations of -1.4%.
This was mainly due to food store sales rising 3.4% from -3.1% in the last month, according to the ONS. Department store sales advanced 5.4%, whereas non-food store sales inched up 6.2%.
Household goods store sales, boosted primarily by hardware stores, rose 1.8% in January, while automotive fuel sales gained 5.4%, the report said. This was mainly due to declining fuel costs. However, clothing store sales dropped by 1.4%.
Why are retail sales suddenly seeing a boost?
Retail sales could be rising due to increased expectations that the Bank of England (BoE) will cut interest rates sooner than expected, maybe even as early as spring this year.
"Back-to-back storms didn’t stop shoppers from hitting the high street in January with efforts from retailers to attract post-Christmas bargain hunters paying off," Phil Monkhouse, UK country manager at financial services firm Ebury, said.
"Although the cost-of-living crisis still looms large, easing inflation and interest rates are slowly increasing confidence among households with many now taking thrift off their New Year resolutions list," he added.
"However, with the UK's recession fears coming true and geopolitical risks, potential supply chain shocks and further economic volatility still create an uncertain environment, the New Year provides retailers with a critical opportunity to take stock of their existing operations and assess their efficiency and resilience to future risks."
"Retailers will need to ensure they have effective hedging arrangements in place alongside ready access to finance to secure stock in good time," Monkhouse added.
Will the recession be short-lived?
Although the UK has just entered a technical recession, January's retail sales have also significantly boosted consumer confidence, indicating that the recession may not be as bad as previously feared.
Nick Reese, forex market analyst at Monex, said that January's retail sales data should put to bed any doubts about the UK's economic prospects heading into 2024.
"The release delivered a monstrous upside beat to reverse December’s slowdown, and in our view, heralds the consumer’s return as a positive force for growth this year," he said.
Reese said that concerns over the UK economy were "overblown", despite Q4 GDP figures suggesting it entered a technical recession to end 2023.
"The marginal contraction hardly warranted the kind of doom mongering that was generated in some quarters," he said.
"As we saw it, this slowdown in activity is more consistent with an economy that has stagnated, and even then, only temporarily," Reese added. "Growth should pick up early in the new year, as indicated by recent flash purchasing managers’ index releases and supported by a recovery in consumer activity fuelled by growing real wages."
