‘Staggeringly strong’ retail sales catch City pundits off guard

By Scott Reid
Published on 18/02/2012 00:00

SHOPPERS shrugged off their austerity woes last month and hit the high street, generating “staggeringly strong” sales figures, which add to signs that the economy may be returning to growth.

Yesterday’s official numbers caught many in the City off guard, though business leaders warned that heavy discounting was eating into retailers’ margins.

The Office for National Statistics (ONS) said sales volumes rose 0.9 per cent between December and January, the strongest performance since last April’s royal wedding and defying expectations of a 0.4 per cent fall.

Bank of England policymakers and UK government ministers are hoping that consumers will spend more this year to support the fragile economy as inflation falls back towards target.

A pick-up in consumer confidence and traditional January discounting may have lifted sales during the month, boding well for GDP growth in the first quarter of this year following a 0.2 per cent contraction in the closing months of 2011.

David Kern, chief economist at the British Chambers of Commerce, said the upturn in sales supported the view that a fall back into recession can be avoided. “This increase shows that the economy is slowly improving and supports our view that GDP will return to positive growth in the first quarter of the year. The figures support the view that inflation in the high street is falling.”

But Kern warned: “Despite the welcome boost in retail sales, we cannot simply rely on consumer spending if we are to sustain growth in the economy. Increasing net exports and business investment is crucial to driving recovery.”

Richard Driver, currency analyst for Caxton FX, described the ONS data as staggeringly strong and said the figures had “caught the market completely offside.”