The UK's month-on-month sales have risen at their highest rate since April 2021, boosted by gains in every sub-sector except clothing, according to new figures.
This has led to increasing hopes that the UK could potentially see its way out of its current technical recession sooner than expected.
The UK's month-on-month retail sales report for January 2024 showed that January retail sales clocked in at 3.4%, a huge step up from December’s -3.3%.
The figure was also more than double analyst expectations of 1.5%. Year-on-year retail sales inched up 0.7% in January, up from -2.4% in December and beating analyst expectations of -1.4%.
This was mainly due to food store sales rising 3.4%, up from -3.1% in the last month, according to the report. Department store sales advanced 5.4%, whereas non-food store sales inched up 6.2%.
Household goods store sales, boosted primarily by hardware stores, inched up 1.8% in January, while automotive fuel sales rose by 5.4%, the report said. This was mainly due to declining fuel costs. However, clothing store sales dropped by 1.4%.
Why are retail sales suddenly seeing a boost?
Retail sales could be rising due to increased expectations that the Bank of England (BoE) will cut interest rates sooner than expected, maybe even as early as spring this year.
Although the central bank itself has been far more cautious and tight-lipped about when and by how much rates could be slashed, investors continue to hold on to hope.
According to Phil Monkhouse, UK country manager at financial services firm Ebury, "back-to-back storms didn’t stop shoppers from hitting the high street in January with efforts from retailers to attract post-Christmas bargain hunters paying off."
"Although the cost-of-living crisis still looms large, easing inflation and interest rates are slowly increasing confidence among households with many now taking thrift off their New Year resolutions list," he said.
"However, with the UK's recession fears coming true and geopolitical risks, potential supply chain shocks and further economic volatility still creating an uncertain environment, the New Year provides retailers with a critical opportunity to take stock of their existing operations and assess their efficiency and resilience to future risks."
"Retailers will need to ensure they have effective hedging arrangements in place alongside ready access to finance to secure stock in good time," Monkhouse said.
Although the UK has just entered a technical recession, January's retail sales have also significantly boosted consumer confidence, indicating that the recession may not be as bad as previously feared.
Nick Reese, forex market analyst at Monex said that January's retail sales data should put to bed any doubts about the UK's economic prospects heading into 2024.
"The release delivered a monstrous upside beat to reverse December’s slowdown, and in our view, heralds the consumer’s return as a positive force for growth this year," he said.
Reese said that concerns over the UK economy were "overblown", despite Q4 GDP figures suggesting it entered a technical recession to end 2023.
"The marginal contraction hardly warranted the kind of doom mongering that was generated in some quarters," he said.
"As we saw it, this slowdown in activity is more consistent with an economy that has stagnated, and even then, only temporarily," Reese added. "Growth should pick up early in the new year, as indicated by recent flash purchasing managers’ index releases and supported by a recovery in consumer activity fuelled by growing real wages."
