British retail sales rose in January for the first time since August and were much stronger than expected, with official data showing consumers were still spending despite the economic outlook remaining bleak.
The 1.7% rise in month-on-month sales volumes was higher than all estimates in a Reuters poll of economists, who had previously forecast a modest 0.3% rise.
The pound jumped nearly a fifth of a cent against the US dollar after the figures were published by the Office for National Statistics (ONS) on Friday.
Paul Dales, an economist at consultancy Capital Economics, said the data showed the retail sector was “getting off to a fast start” in early 2025.
“But some of this strength may come at the expense of weakness in other sectors,” he said, referring to strong growth in food sales that is likely to weigh on the hospitality sector.
“And with household sentiment still bleak, we doubt it will last long,” Dales added.
A survey published earlier on Friday showed British consumers were only slightly less pessimistic this month.
Separate ONS data showed Britain posted a smaller-than-expected budget surplus in January, keeping the possibility of further spending cuts or tax hikes by Chancellor of the Exchequer Rachel Reeves in the running to ensure public finances are met.
The monthly increase in sales in January was the fastest since May last year and marked a recovery after negative sentiment about the economy in 2024, which was dampened by Prime Minister Keir Starmer’s new government ahead of Reeves’ first budget in October.
Retail sales volumes in the three months to January fell by 0.6% compared with the previous three months, reflecting weakness at the end of last year.
Compared with a year earlier, retail sales in January rose by 1.0%, higher than the median expectation of 0.6%.
Data published earlier this week showed inflation rose more than expected in January, while growth in employment and wages was also stronger than expected. However, the Bank of England this month halved its forecast for economic growth in 2025.
The central bank said it would take a cautious and gradual approach to further interest rate cuts.
