As food stores saw the biggest boost, sales volume increased in all areas except closures. Consumers „spent less in January,” the ONS said, with the total amount they paid rising by 3.9%.
The latest figures follow Thursday's news that the British economy entered a technical recession in the final quarter of 2023. Gross domestic product fell 0.3% following a 0.1% contraction in the third quarter.
Sales during the key holiday trading period were much weaker than expected, and December saw the biggest monthly drop since January 2021.
British retail sales, meanwhile, have been 1.3% below pre-pandemic levels since February 2020, according to the ONS.
„A strong increase in sales, now behind the worst in the retail sector, and falling inflation and wage growth in 2024 will provide a strong platform for recovery,” Joe Maher, assistant economist at Capital Economics, said in a note.
The rise points to a faint drag on consumer spending from higher interest rates, as well as the economy emerging from recession, Maher said — but „retailers still have a long way to go” to their pre-pandemic peaks.
Chris Hammer, director of intelligence at the British Retail Consortium, said two months of higher sales levels in the past three months were „reassuring” after a 19-month slump.
„However, as we enter a third year of higher cost of living, shoppers remain cautious,” Hammer said, adding that higher business rates and new border control costs will weigh on the retail sector.
Despite the poor growth figures, the retail sales report — along with steady inflation figures and a healthy December jobs report — ended the week on a „semi-positive note,” Berenberg's senior economist Callum Pickering said.
Evidence from retailers suggests consumers held back in December, but they've come into effect to benefit from January sales, he said.
„However, we need to be cautious. The monthly data is volatile. The January jump is a big 3.3%[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel][month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote[மாதாந்திரடிசம்பரில்வீழ்ச்சியைஈடுசெய்கிறது-எனவேஉண்மையானவிற்பனைநவம்பர்நிலைக்குத்திரும்புகிறது”பிக்கரிங்ஒருகுறிப்பில்கூறினார்[month-on-monthdropinDecember–andhencereturnsrealsalestotheNovemberlevel”Pickeringsaidinanote
The new figures are consistent with „intermediate stagnation” in the retail sector and broader economic activity over the past 18 months, although Berenberg economists expect retail momentum to pick up in the coming months due to higher real wages and consumer confidence.