UK's retail sector defies doom and gloom as sales increase sharply in February

Britain's retail sector performed much better than expected in February, with sales of clothing and household goods rising sharply, but the outlook for the sector remained weak, official figures released on Thursday (23 March) showed.

According to the Office for National Statistics (ONS), retail sales including auto fuel rose 3.7% on an annual basis last month, comfortably beating expectations for a 2.6% gain, but down from the 1.5% increase recorded in the previous month.

Sales rose across the board, with household goods increasing 3.7% and clothing growing 1%. The ONS added that, excluding auto fuel sales, the gain stood at 1.3%.

On a month-on-month basis, retail sales increased 1.4%, compared with analysts' expectations for a 0.4% gain and with the 0.3% decline recorded in the previous month.

However, that left the quantity bought in the three-month period down 1.4% compared with the previous quarter, marking the biggest quarterly drop since early 2010.

That means sales could fall in the first quarter of the year, unless March records a 3.3% gain. Sales have not fallen in a calendar quarter in over three years.

"Retail sales account for around one-third of total consumer spending, so the latter will provide little—if any—support to GDP growth in the first quarter," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Looking ahead, consumer spending likely will only edge up, given that consumers' real wages now are falling, employment is growing only modestly and another wave of welfare spending cuts will hit households next month."

Earlier this week, the ONS said inflation soared past expectations in February, breaking through the Bank of England's 2% target for the first time in three years, as the cost of fuel and food increased markedly.

Inflation rose 2.3% year-on-year last month, up from the 1.8% reading recorded in January and higher than the 2.1% figure analysts forecast, meaning the increase was the fastest on record since September 2013.

Meanwhile, data released last week showed basic salaries grew 2.2% in the three months to January, down from a 2.6% gain in the previous month and falling short of forecast for a 2.4% reading.

"The economy's persistent resilience since last June's Brexit vote has been largely built on consumers keeping on spending," said Howard Archer, chief UK and European economist at IHS Markit.

"With consumers now seemingly moderating their spending, the long anticipated slowdown in the economy looks set to materialize unless other sectors can make significantly increased contributions."