Clothes shops in particular had rise in sales after launching price reductions

This article is more than 1 year old

This article is more than 1 year old

High street discounts in the January sales helped drive a strong recovery in UK consumer spending last month in a sign that British consumers shrugged off mounting fears over Brexit.

Sales volumes jumped by 1% in January compared with the previous month, providing support to struggling retailers after a slump in the amount of goods sold during the Christmas shopping period. City economists had forecast a more modest recovery of 0.2%.

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The Office for National Statistics said clothing stores in particular were boosted by a rise in sales after luring consumers with price reductions, while food sales also recovered after a slight dip during Christmas.

Although coming as a welcome boost to the economy, trade body the British Retail Consortium warned the latest figures masked significant difficulties for the industry. Several retailers have entered administration in recent months, hit by rising online competition and a broader slowdown in consumer demand.

Rachel Lund, the BRC’s head of insights and analytics, said: “The discounts which drew shoppers into stores won’t last forever. With uncertainty surrounding Brexit weighing on consumer confidence, once the period of seasonal promotions is over, households are likely to remain cautious with their spending.”

With little more than 40 days to go before the UK is scheduled to leave the EU, analysts said the data may indicate that British consumers are tuning out from the political turmoil gripping Britain.

Annual sales growth increased to 4.2%, from 3.1% in December. In a positive signal for the high street, online sales as a total of all retailing also fell back slightly, dipping to 18.8% last month from 19.8% in December.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said: “Most households have maintained a happy-go-lucky mentality, despite the fraught political situation. While consumers’ confidence is down, this reflects rather fuzzy expectations that Brexit might be costly eventually.”

Some surveys have suggested consumers are losing confidence and are putting big-ticket spending decisions on hold. Households have, however, begun to benefit from a gradual increase in real earnings as inflation fades and pay growth accelerates, which should help to support stronger spending. Still, average wages remain below the peak recorded before the financial crisis.

Growth in household consumption has slowed since the Brexit vote two and a half years ago, with consumers coming under pressure from higher inflation triggered by a fall in the pound’s value after the referendum.

However, spending did not completely collapse, as consumers dipped into their savings or borrowed money to keep buying goods and services. The household savings ratio, which is used to measure the amount of money people have available to save, has slumped to the lowest level since the 1960s.

The latest retail sales figures clash with other readings of the economy, which have suggested that growth in business activity has ground almost to a halt in recent months. Economists also say the figures can prove volatile on a monthly basis.

Duncan Brewer, a partner at the consultancy Oliver Wyman, said consumers might be stockpiling products they worried would not be available after Brexit, or to avoid potential price increases.

Steep discounts offered by retailers are likely to have helped boost sales, despite the growing signs of weakness in the UK economy, which could mean they are likely to fall back again in February.

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Economists said that, unless a Brexit deal can be agreed soon, retail sales are likely to dip again in the near future.

James Smith, an economist at the City bank ING, said: “Brexit uncertainty is likely to keep a lid on spending over the next few months. Despite an improvement in real wage growth, consumer confidence remains at the lowest level since 2013.”