Shortly after Valentine's Day, Britain received grim news that its economy was faltering into a recession At the end of last year.
As the country now comes to terms with the disappointing economic results, encouraging data has emerged. UK retail sales saw a surprise rise – the biggest rise in almost three years 3.4% in Januaryas consumer spending continues to be strong, the Office for National Statistics said on Friday.
That's also the strongest increase in retail spending since at least 1996, excluding the COVID-19 surge, and represents a welcome reversal from December's 3.2% plunge Sales figures. Part of the reason sales fell sharply in December was that shoppers on a budget postponed their holiday shopping until November to take advantage of Black Friday deals.
“Overall, today's release was stronger than expected and suggests that the drag on consumer spending from higher interest rates is quickly easing and suggests the economy is soon emerging from recession,” said Joe Maher, an economist at Capital Economics. according to Reuters.
Maher added that retail sales could actually increase abbreviate the recession that Britain has just fallen into.
On the surface, strong retail sales are good news. It suggests an upward trend – an expansion rather than a decline in consumer demand.
But experts are more cautious about what this data really says.
“A pinch of salt,” please
January's increase in retail sales volume now brings it back to November 2023 levels, but that is still 1.3% below pre-pandemic levels, according to the ONS.
“After the steep decline in retail sales we saw in December, as shoppers brought forward some of their holiday spending to the Black Friday sales period in November but also played it safe with smaller family gatherings, January rebounded significantly,” said Lisa Hooker, PwC's consumer markets industry leader, said in a note. But she warned that the numbers reflect a return to weak growth rather than a “prolonged recovery.”
The January numbers reflected a shift in seasonal spending trends, not necessarily the macroeconomic climate, warned James Smith, an economist at Dutch bank ING.
“It appears to be a growing trend that is making it difficult for statistics offices to accurately adjust figures for season – a challenge that is not unique to the UK,” he said in a note. “The upswing in January should be treated with as much caution as the fall in December.”
Wait, there is a silver lining
Amid a recession, a cost of living crisis and elevated interest rates, the UK economy appears to be under attack from all sides – a situation that also raises further questions about whether the UK will remain in its state of stagnation, according to Resolution's James Foundation Smith noted.
“The overall picture is that Britain remains a country of stagnation and there is little sign of a recovery that will pull the economy out of the crisis,” he said in a statement following the release of UK GDP data on Thursday.
The silver lining? While the economic data is not all in the UK's favour, there are important signs of progress.
Inflation is on the rise under control– in January it fell to 4% year-on-year. This could lead to lower interest rates in the not too distant future, which would help ease some of the mortgage pressure on Brits. Consumer confidence in the UK has increased has also improved as a result.
Taken together, this could mean that the path to economic growth is in sight after all.
“The rebound in retail is another reason to expect a rebound in growth in the first quarter,” said ING’s Smith, adding: “While we should not get too carried away – not least as the labor market continues to cool gradually will – and…” An improving consumer environment should help the UK economy return to moderate growth by 2024.”