Daily Management Review

UK Consumers Are Spending More, Indicating A Speedy End To The Recession


UK Consumers Are Spending More, Indicating A Speedy End To The Recession
With consumers resuming their spending habits in January, British retail sales surged at their fastest rate in over three years, indicating that the economy may rebound swiftly from the recession that it entered in the latter part of last year.

Sales volumes rose 3.4% from December, substantially exceeding the median economist prediction of a 1.5% increase in a Reuters survey.

The largest increase since April 2021 occurred in January, following a 3.3% decline in December. Although the Office for National Statistics attributed some of the weakening to the well-liked Black Friday sales in November, that was the biggest decline since January 2021.

With the exception of the coronavirus pandemic era, January's increase was the biggest since the ONS data's initial collection at least in 1996.
"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.
According to data released on Thursday, the Bank of England's high interest rates intended to combat excessive inflation had a negative impact on both families and businesses, causing the British economy to enter a recession in the second half of 2023.

However, 2024 is predicted to see a modest expansion of the economy as salaries increase, inflation declines, and interest rates are predicted to decline.

A potential boost could come from tax cuts announced by Finance Minister Jeremy Hunt on March 6, which is anticipated in an effort to turn around Prime Minister Rishi Sunak's Conservative Party's declining fortunes ahead of the 2024 election.
The sales figures released on Friday confirmed earlier indications of a revival in the British economy, which the Bank of England has projected to expand in 2024, if only by 0.25%.

On Wednesday, Governor Andrew Bailey stated that some indications of an improvement had already been seen.

Following the release of the retail sales figures, sterling gained slightly versus the dollar and the euro.
There were indications of the pressure on the British economy behind January's increase.
Overall sales, according to the ONS, remained 1.3% lower than they were just prior to the epidemic.

Sales volumes were 0.7% greater than they were a year earlier.

According to the ONS, food shop sales increased by 3.4% in January following a 3.1% decline in December.
A portion of the rise in sales volumes was attributed by analysts to customers taking advantage of sales.

"Despite a number of encouraging macroeconomic indicators, such as declining inflation, rising consumer confidence, and the possibility of lower interest rates, consumers continue to exercise caution when making purchases," stated Lisa Hooker, PwC's industry leader for consumer markets.

Data released on Wednesday revealed that British inflation remained stable in January, bucking expectations for growth.

The BoE's officials, however, have stated that before acting more swiftly to lower borrowing prices, they would need to see additional proof of a reduction of inflationary pressures.  The last three months of 2023 saw a slowdown in wage growth, which the BoE is closely watching, but it was still solid as businesses struggled to keep employees and fill open positions.
The only subcategory to decline in January, according to the ONS, was clothing sales, which fell 1.4% for the month.  Overall sales volumes increased 3.2% in January compared to December, excluding petrol.