January saw a rebound in shop sales as consumers flocked to supermarkets for food and took advantage of New Year deals. Official data showed a 3.4% increase in sales following a record decline in December. Supermarkets experienced a significant rise in food sales, and department stores also reported positive results from January sales. However, inflation remained high, resulting in consumers paying more for less.
The Office for National Statistics (ONS) reported a 3.9% increase in the value of goods purchased in January, compared to a 3.4% rise in the volume of products bought. Although inflation has slowed down, it remains at 4%, above the Bank of England’s 2% target.
“Nearly all retail sectors saw an increase in sales, with supermarkets having a particularly strong month,” said Heather Bovill, deputy director for surveys and economic indicators at the ONS. “Household goods stores, sports shops and department store retailers also reported robust trading due to January sales promotions.”
December saw a sharp decline in shop sales, which the ONS attributed to early Christmas shopping during November’s Black Friday sales. The ONS also reported that 46% of nearly 2,400 people surveyed last year planned to spend less on Christmas food or gifts due to the rising cost of living.
The December decline in retail sales also contributed to a drop in the UK’s gross domestic product, indicating a recession at the end of last year. Opinions are divided on whether January’s rebound marks a turning point for UK retailers and consumer spending.
Joe Maher, assistant economist at Capital Economics, believes that the strong pick-up in sales suggests that the retail sector’s worst days are behind it and that falling inflation and rising wages in 2024 will provide a solid foundation for recovery. However, Lisa Hooker, leader of industry for consumer markets at PwC, predicts a sustained recovery only in the second half of 2024.
Inflation, which hit a four-decade high of 11.1% in October 2022, has been putting pressure on consumer spending. The Bank of England has raised interest rates several times to combat soaring costs. After raising interest rates to 5.25% last August, the Bank has since kept them steady.
Financial markets anticipate a rate cut from the Bank this year, but the timing remains uncertain. The revelation that the UK had entered a recession in 2023 raised the possibility of a spring rate cut, which could alleviate some households’ financial burden.
Chancellor Jeremy Hunt will announce his Budget on March 6 and stated that while high interest rates are necessary to reduce inflation, low growth is not surprising. However, he believes the economy is “turning a corner.” At its last interest rate meeting in early February, the Bank of England hinted at a potential rate cut, with one of its nine-member Monetary Policy Committee voting for a reduction.
