UK retail sales in surprise 1 pct January gain

February 17, 2012 - 8:25 AM

LONDON (AP) — Retail sales in Britain rose nearly 1 percent in January, official figures showed Friday, confounding market expectations of a decrease and easing fears that the country would fall back into recession.

The Office for National Statistics said Friday that both the volume and value of sales increased by a monthly 0.9 percent in January on a seasonally adjusted basis. The consensus in the markets was that retail sales would drop 0.3 percent as consumers struggle in a flat-lining economy.

"These figures are a bolt from the blue and are at odds with the much softer survey data," said Nida Ali, economic adviser to the Ernst & Young ITEM Club.

She and other analysts suggested that sales may have been stimulated by price cutting, a retail strategy which isn't sustainable over the long haul.

On the brighter side, Ali said the data reduces the chances the GDP will decline in the current quarter, following a drop of 0.2 percent in the last three months of 2011. If the economy contracts again then Britain would officially be in recession — defined as two straight quarters of negative growth.

A more detailed look at the figures shows that household goods store sales rose by 4 percent while fuel sales were up 8.5 percent.

However, stores which deal mainly in food and account for 42 percent of the retail market, reported a drop of 0.3 percent both in volume and value.

The figures also contradict the findings of the British Retail Consortium, which indicated that sales fell in January.

"The official figures may not be giving a true reflection on the strength of spending," said Samuel Tombs, U.K. economist at Capital Economics.

Tombs also questioned whether small retailers — those with fewer than 10 employees — really increased sales by 24 percent since last year, as the official report says.

"After all, small firms are finding it harder than most to obtain credit and expand," Tombs said.

Despite the upside surprise in January, the economic background remains discouraging. Unemployment stands at 8.4 percent and is at its highest level since 1995, while consumer price inflation has been above 3 percent since January 2010, outpacing increases in wages.

Blerina Uruci at Barclays Capital Research was a bit less skeptical of the January rise because the less volatile measure of sales over the last three months also registered a gain of about 1 percent.

However, Uruci said "this month's increase was mainly a result of a rebound in household goods sales after several months of consecutive falls, while food and clothes sales remained subdued."