Sunday , May 19 2024

UK retail sales stagnate despite easing inflation

20-04-2024

LONDON: British retail sales stagnated in March despite high inflation easing recently, representing the first time that they have not grown in monthly terms since December, the Office for National Statistics said on Friday.

Economists polled by Reuters had mostly forecast sales volumes would increase by 0.3% on the month but the ONS said sales volumes showed no growth after rising by an upwardly revised 0.1% in February.

Rises in automotive fuel sales which were the highest since May 2022 and non-food store sales were offset by falls in food stores and online and other non-store retailers, the ONS said.

Sales volumes excluding fuel sales were down 0.3% on the month.

“What is clear is that the first quarter of the year has been disappointing for many retailers,” said Lisa Hooker, leader of industry for consumer markets at PwC. “Lower inflation and the first 2% cut to National Insurance, which was felt in January’s pay packets, has yet to translate into a sustained recovery in spending.”

Finance Minister Jeremy Hunt, hoping to boost the chances of the ruling Conservative Party in an election expected this year introduced a second social security tax cut in April after the initial January cut.

There have been some encouraging signs recently from leading UK retailers.

Tesco (TSCO.L), opens new tab, the country’s biggest supermarket group, and clothing group Next (NXT.L), opens new tab both highlighted an improving consumer outlook and forecast profit growth for 2024. Home improvement retailer Kingfisher (KGF.L), opens new tab warned on profit but said its UK operations were performing better than in France.

Sterling fell briefly against the US dollar and the euro immediately after the retail figures were published.

British consumer price inflation was its slowest in two and a half years in March although it fell by less than expected as motor fuel prices rose, tempering market expectations about the scale of Bank of England interest rate cuts this year.

Friday’s figures contrasted with some business surveys that showed a pick-up in retail sales in March.

Compared with a year ago, the ONS data showed sales volumes were 0.8% higher. They rose by 1.9% from the previous three months, the biggest such increase since mid-2021, boosted by a leap in sales in January.

Britain’s inflation rate slowed by less than expected in March, according to official figures published on Wednesday, adding to signs that a first interest rate cut by the Bank of England could be further off than previously thought.

British consumer prices rose by an annual 3.2%, down from a 3.4% increase in February and its lowest in two and a half years, the Office for National Statistics said but the BoE which has an inflation target of 2% and economists polled by Reuters had forecast 3.1%. Investors reduced their bets on BoE rate cuts and sterling rose.

The slowdown in the fall in Britain’s inflation rate follows an acceleration of headline price growth in the United States which rose for a second month in a row to 3.5% in March, according to data published last week.

BoE Governor Andrew Bailey, who last month said British inflation was “moving in the right direction” for a rate cut, said on Tuesday that different inflation dynamics in the US and Europe could lead to different paths for interest rates but analysts said Wednesday’s data served as a reminder that Britain’s fight against inflation was not yet won.

Ruth Gregory, deputy chief UK economist at Capital Economics, said there was a risk that Britain will follow the trend in the U.S. and see inflation stall. (Int’l Monitoring Desk)

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