High street upturn looks to have been a false dawn

UK RETAIL sales bounced back far more strongly than expected last month but commentators cautioned the jump was unlikely to signal the start of a sustained recovery in consumer spending.

Statistics released by the Office for National Statistics (ONS) yesterday showed sales volumes increased by 1.9 per cent compared to December, more than three times faster than analysts had forecast.

But the ONS also revised its figure for December downwards from a 0.8 per cent fall to 1.4 per cent, suggesting that the impact of the severe weather was even worse than previously thought.

Although commentators said the January rise in sales volumes was welcome, they cautioned about taking too much comfort form the figures.

The Centre for Economics and Business Research (CEBR) described the bounce-back as a "last hurrah" from the consumer and said it still believed 2011 was set to be a stagnant year for the sector as inflation and unemployment took their toll on spending.

The British Retail Consortium, which last week released figures also showing strong growth for the month, said that while the January performance looked encouraging on the surface, it didn't "indicate any permanent revival in customers' willingness to spend".

BRC director general Stephen Robertson said he believed the figures for this month would be more telling.

"Our own figures show spending tailed off sharply as January developed," he said. "Slumping consumer confidence indicates concerns about jobs and finances are now reasserting themselves. February's results will be a better indicator of how things really are."

The ONS confirmed there was some anecdotal evidence that shoppers had made major purchases before the VAT rise took effect on 4 January but that sales after that date had dropped.

Year-on-year, retail sales volumes were up by 5.3 per cent in January, their biggest annual rise since November 2004. But the annual comparison was flattered by the fact that harsh weather heavily disrupted trade in January 2010.

The CEBR said it maintained its view that difficult times lay ahead for the sector.

Economist Shehan Mohamed said: "During the recession, large retailers such as supermarkets and department stores performed well as they were able to find better value for customers.

"However, this will now prove to be a challenge as they are faced with higher input prices and consumers with reduced spending power," he added.

"We therefore expect 2011 to be a stagnant one for retailers, with a lot depending on the ability of the private sector to create new jobs, fill their spare capacity and return the economy to sustained economic growth."

David Kern, chief economist at the British Chambers of Commerce, said the figures supported the organisation's view that GDP will show positive growth in the first quarter of 2011 after the decline in the last quarter.

"But the overall pace of recovery is modest and there is no room for any complacency," noted Kern. "The economy is still facing risks as the government implements measures to reduce the deficit.

"Pressures will intensify in the months ahead, and with wages increasing slower than prices, disposable incomes will be squeezed further."

Figures released earlier this week by the Scottish Retail Consortium confirmed consumer confidence in Scotland lagged the UK with high street sales seeing a 0.9 per cent fall last month.