U.K. retail sales rise strongly in January

U.K. retail sales rose strongly in January, providing the first real piece of strong evident that the post-election bounce in economic activity was being borne out in the official ‘hard’ data, noted Lloyds Bank in a research report. The headline retail sales volumes rose 0.9 percent month-on-month, while excluding the sale of motor fuel, sales volumes rose 1.6 percent. These outturns surpassed the consensus expectations, which rose 0.7 percent and 0.8 percent, respectively.

The rise in January comes after a disappointing data seen in the second half of 2019, during which headline retail sales dropped in four out of the final five months. That took the annual rate of growth below 1 percent in December. Nevertheless, this weakening in activity is likely a reflection of consumers reining in spending in the face of increased political uncertainty in the latter parts of the year, than being a symptom of reduced purchasing power, said Lloyds Bank. The lingering prospect of the U.K. exiting the EU without a withdrawal agreement and the election in December is likely to have led to consumers exercising some caution with regards to their spending.

Such a reaction to uncertainty is not surprising. Nevertheless, while uncertainty persists, given the ongoing negotiations between the U.K. and the EU on the future trading relationship, there is a growing sense of direction which implies that the rebound in retail activity has further to go, stated Lloyds Bank.

“Today’s report provides further support for the Bank of England to keep interest rates on hold. Is is worth noting, however, that care should be exercised in interpreting what today’s report means for broader consumer spending and therefore overall GDP growth. Spending on retail items accounts for only around 35-40 of overall consumer spending, which therefore means the overall mapping between the two is variable. Nevertheless, today’s report should ease some concerns that the underbelly of the UK economy remains firm, outside of the volatility generated by ongoing political developments”, added Lloyds Bank.