British consumers hit the shops again in sign economic recession may end

Sales volumes in January were up 3.4% from December, much stronger than the median forecast of a 1.5% increase

Analysts linked some of the increase in sales volumes to consumers taking advantage of discounts. 

British retail sales jumped by the most in almost three years in January as consumers recovered their appetite for spending, suggesting the economy could emerge quickly from its recession in the second half of last year.

Sales volumes increased by 3.4% from December, much stronger than the median forecast of a 1.5% increase in a Reuters poll of economists. 

January's jump was the biggest since April 2021 and followed a 3.3% fall in December. That was the sharpest drop since January 2021, although the UK's Office for National Statistics linked some of the weakness to popular Black Friday sales in November.

Excluding the coronavirus pandemic period, January's increase was the sharpest since at least 1996 when the ONS data was first collected. 

"Overall, today’s release was stronger than expected and suggests the drag from higher interest rates on consumer spending is fading fast and points to the economy soon moving out of recession," Joe Maher, an economist with Capital Economics said. 

However, behind January's jump there were reminders of the strain on Britain's economy. The ONS said overall sales were still 1.3% below where they were immediately before the pandemic. Compared with a year ago, sales volumes were 0.7% higher and the ONS said food store sales rose by 3.4% in January after December 3.1% fall.

Analysts linked some of the increase in sales volumes to consumers taking advantage of discounts. 

"While many of the macroeconomic indicators are positive — falling inflation, improving consumer sentiment, the prospect of lower interest rates — consumers remain cautious about spending," Lisa Hooker, PwC's leader of industry for consumer markets, said.

Data published earlier this week showed Britain's economy slipped into a recession in the second half of 2023 as the Bank of England's high interest rates to curb strong inflation took their toll on households and businesses. 

But the economy is expected to grow slightly in 2024 as inflation cools, wages rise and interest rates are forecast to fall. 

Friday's sales data added to other early signs of a recovery for Britain's economy, which the Bank of England has forecast to grow, albeit by a minuscule 0.25% in 2024. Bank of England governor Andrew Bailey said this week there had already been some hints of an upturn. 

• Reuters