UK retail sales unexpectedly rebound

LONDON: Retail sales in the United Kingdom registered a surprise pick-up in March, led by strong food and non-store sales.

Sales volumes rose by 0.2 per cent compared with a month earlier, according to the Office for National Statistics.

British Broadcasting Corporation reported that market analysts had expected a much weaker number after a downbeat survey was released by the British Retail Consortium last week.

It follows a revised 0.9 per cent drop in sales in February – a fall that had also caught analysts by surprise.

The ONS said in its latest retail sales bulletin that the volume of sales was up by 1.3% compared with March 2010 on a seasonally adjusted basis – which takes account of the fact that Easter fell in March last year.

Food stores saw their sales rebound 0.7 per cent compared with February, which had been a very weak month for them, but remain one per cent lower than a year ago.

Non-store sales continued to register strong growth – up 0.6 per cent against February, and up 13.1% versus a year earlier – in part reflecting the continuing shift of business online.

The ONS estimates that internet sales now comprise 9.8 per cent of all non-fuel retail sales in the UK by value.

Down in December because of bad weather, a bounce back in January, another drop in February and some recovery last month – the recent story for retail sales has been volatile.

Analysts were surprised to see there was sales growth in March, given all the doom and gloom about the squeeze on household budgets. Better weather might have created a cheerier mood.

But the 0.3% increase over the three months to March was nothing spectacular, though some might argue it could have been worse.

All eyes will now be on the whole economy. GDP figures for the first quarter are released next week.

The numbers caught markets by surprise – instead of a 0.2 per cent rise, economists had expected a month-on-month fall in sales of 0.5 per cent.

Sterling jumped half a cent against the dollar after the data was released, as currency traders priced in a higher probability that the Bank of England will raise rates over the summer, and went on to hit a 16-month high of $1.657.

In the minutes from its latest rate setting meeting in April, the bank indicated that the strength of recovery in consumer spending was a key question for them.

However, the retail price deflator – an important proxy for inflation included in the data release – slowed down to a 3.4 per cent annual increase from four per cent in February.

“The consumer is not quite as flat on his back as had been feared,” economist at IHS Global Insight, Mr. Howard Archer said.

However, he pointed out that despite the modest pick-up in sales and slowdown in price rises in the month, consumers were still seeing their incomes squeezed by inflation and “the underlying impression remains that consumers are less able and willing to spend.”

He also noted that consumer spending for the first quarter of the year as a whole had only risen 0.3 per cent versus the previous three months, which did not bode well for the economy, as retail sales comprise 65 per cent of all spending.

Victoria Cadman, an economist at Investec, said, “These figures and those from the last couple of months are not really showing the retail sector as being a picture of health.

“I suspect the Monetary Policy Committee will not see this as a sign that consumer demand is gathering pace.”

Smaller shops were doing well – including those in London selling memorabilia for the royal wedding, Aileen Simkins from the ONS told the BBC.

The ONS highlighted in its bulletin that small stores did much better than large stores.

This was particularly true of the food sector, where sales at smaller retailers were 2.5 per cent higher than a year earlier, whereas supermarkets were down 4.1 per cent.

The trend was first apparent in January, and reverses years in which sales growth at big stores has been outstripping that at smaller ones.

“There is some talk that the high cost of petrol is leading some people to cut back on driving to the out of town shopping centres and supermarkets and do more shopping locally,” Archer said.

The ONS’ Aileen Simkins also noted that good weather in March helped sales of items such as climbing frames, as people prepared for a long summer.

Other sectors showing strong growth were garden stores and toy stores, while IT stores were also doing well on the back of new product launches, she said.

The ONS figures come after supermarket giant Tesco revealed earlier this week an 0.7 per cent drop in UK like-for-like sales in the three months to February 26.

Meanwhile Home Retail Group reported shrinking markets for its Argos and Homebase chains, and predicted another tough year in 2011.