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UK retail sales grow less than expected in January
Retail sales in the UK grew less than expected in January, according to data from the Office for National Statistics.
Sales were up 0.1% on the month compared to a 1.4% drop in December, missing expectations for a 0.5% gain. On the year, retail sales were up 1.6% in January, falling short of expectations for a 2.4% increase.
Food sales were down 0.9% in volume terms last month compared with the previous year, marking their biggest decline since October.
As weaker food sales took their toll, people's desire to get fit was apparent, most likely as a result of over-indulgence over the Christmas period.
ONS senior statistician Rhian Murphy said: "Retail sales growth was broadly flat at the beginning of the New Year with the longer-term picture showing a continued slowdown in the sector. This can partly be attributed to a background of generally rising prices. Growth in the quantity of sporting equipment, games and toys being bought was offset by falling food sales when compared with the same month a year earlier. Sporting equipment sales have grown more than usual in January following an increased uptake for gym wear."
Sterling maintained mild gains against the dollar following the release of the data, trading up 0.1% at 1.4113.
Earlier this week, figures from the ONS revealed that UK inflation unexpectedly held steady at 3% last month, just shy of November's five-year high of 3.1%.
Ruth Gregory, UK economist at Capital Economics, said: "January's subdued rise in the official measure of retail sales volumes suggests that the real pay squeeze is continuing to take its toll on high-street spending."
She said sales would need to rise by around 1% over the next two months in order for it to provide the same support to GDP growth that it did in the fourth quarter.
"However, the ongoing strength in annual nominal retail spending growth, which stood at 4.5% in the three months to January, offers some comfort as it suggests that consumers aren't tightening their belts in response to higher interest rates or Brexit worries. And if we are right in thinking that inflation will continue to fall back this year - note that the retail sales deflator has already showed signs of dropping, ticking down from 3.1% in December to 2.8% - and wage growth will gradually pick up, consumer spending should receive more fundamental support over the coming quarters. As such, we continue to expect household spending to rise by 1.7% this year and 2% in 2019, up from 1.5% or so in 2017."
Pantheon Macroeconomics said that the failure of retail sales to recover meaningfully from December's drop highlights that consumers can't be counted on to drive the economy forwards this year.
"Consumers will come under more pressure to scrimp as the fiscal consolidation intensifies in April and mortgage rates continue to creep up. Slower job creation, meanwhile, likely will be the flip-side of stronger growth in wages this year, implying that growth in overall nominal incomes won't accelerate this year. And finally, households' low saving rate means that they have little scope to shield spending from any further shocks to their incomes. As such, 2018 is shaping up to be another tough year for retailers."
Ben Brettell, senior economist at Hargreaves Lansdown, said the 0.1% gain in sales suggests consumers were somewhat reluctant to splurge in the January sales, dealing another blow to the UK's domestic economic prospects following December's 1.4% decline.
"We've been waiting for the pay squeeze to filter through to the high street, but for much of last year retail sales held up better than many expected. The big question now is whether this is the start of a worrying trend for the economy, or whether falling inflation and rising wages will come to the rescue. The monthly data is volatile, and it's therefore hard to draw firm conclusions from two months of disappointing numbers, but it now looks certain the longer-term trend is one of slowing growth in the retail sector."