UK retail sales remain on downward trend despite January up-tick

(Alliance News) - UK retail sales rose in January from the month before, according to an estimate released by the Office for National Statistics on Friday.

Despite January's up-tick, analysts pointed to a wider downward trend in retail sales in the UK, with Samuel Tombs, chief UK economist at Pantheon Macroeconomics, saying the "partial" recovery in retail sales "should not distract" from the "dismal" near-term outlook.

Retail sales volumes are estimated to have increased by 0.5% in January from December, reversing a revised fall of 1.2% in December from November. Markets had expected retail sales volumes to fall by 0.3% monthly, according to FXStreet.

"January's increase in retail sales wasn't enough to reverse a steep fall around Christmas, and the big picture is that sales have been on a downward trend," said James Smith, developed markets economist at ING.

The ONS said sales volumes remained 1.4% below their pre-Covid February 2020 levels.

Sarah Coles, head of personal finance at Hargreaves Lansdown said: "Given the fall in December, there's a decent chance some of this was us putting off seasonal spending until the sales kicked in."

As a result, Coles argued the figures did not represent a "turnaround in the fortunes of the retailers" but instead suggested it is "highly likely" that this is "just a bump in the slide that started back in summer 2021" for retail sales.

Against a year prior, retail sales volumes are estimated to have fallen by 5.1% in January. In December, retail sales volumes fell by 6.1% year-on-year.

Markets had expected a steeper annual decline in retail sales volumes in January, anticipating a 5.5% fall.

Excluding fuel, retail sales volumes increased by 0.4% on a monthly basis but fell 5.3% on a yearly basis.

ING's Smith said that what was "interesting" about Friday's print was that the ONS said the "brighter spots" in January's numbers – online and non-food sales – were bolstered by discounting.

"This is only anecdotal evidence admittedly, but it does support the trend we're seeing in core goods inflation, which has been easing rapidly on lower consumer demand, improved supply chains and rising retail inventories. Goods prices aren't the main area of focus for the Bank of England, but it does help the overall inflation story," Smith said.

Smith said that he expects the downward path of retail sales continue for "at least a couple more months", but added that the outlook "should begin to turn brighter".

Davy Research said the immediate outlook for UK retail sales remained "bleak", seeing a 0.9% contraction in consumer spending in 2023, before a 0.6% rise in 2024.

By Heather Rydings, Alliance News senior economics reporter

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