Brits returned to the shops in January as discount spending fueled the first monthly rise in retail sales volumes since last August.
Retail sales volumes rose 1.7 per cent in January, following a fall of 0.6 per cent in December, according to the ONS.
Analysts had expected growth of just 0.3 per cent.
This was fueled by a 5.6 per cent rise in food sales, which analysts said was encouraged by spending on discount goods.
However, volumes at non-food stores – department, clothing and household shops – fell 1.3 per cent over the month, which retailers and household goods stores attributed to reduced consumer confidence, the ONS said.
It was “not the splash retailers will have wished for,” Alice Cowley, Retail Strategy Managing Director at Accenture said.
“Consumers have kept a tight grip on their purse strings post-Christmas,” Cowley said.
“This past three-month period has fallen short of expectations for many, as shoppers increasingly prioritised essentials only in non-food categories and turned to own label food products, weakening margins.”
Retail sales ‘hard to predict’
Analysts have warned that an over-reliance on discount spending will shave already-thin margins, something which will be compounded by the significant tax rises set to hit the retail sector in April.
The British Retail Consortium (BRC) has said that the sector will see £7bn in added costs when the effects of a higher minimum wage, packaging tax and changes to employer’s national insurance contributions.
“With consumer expectations for the economy falling almost 40pts since July 2024 and an unsteady job market, the next few months are hard to predict,” Kris Hamer, Director of Insight at the British Retail Consortium, said.
“This boost to sales barely touches the sides of the £7bn in new costs from the Budget and packaging levy facing the industry this year,” Hamer added.
Earlier in February, a heavyweight group of retailers warned that hundreds of thousands of jobs are at risk in the retail sector due to unsustainable cost hikes this year.
Peel Hunt has estimated that retail firms in their coverage will see pretax profit fall by an average of 7.5 per cent due to the Budget’s tax increase, although some will be hit much worse than others.
”A closer look at the numbers suggests that there may not be as much to celebrate as one may think,” Matt Dalton, Consumer Sector Leader at Forvis Mazars, said.
“The main upside driver was food stores. The most recent inflation survey suggests that food inflation is picking up, which might account for stronger sales. We would be reserved, also given the Bank of England’s recent severe downgrade of UK economic prospects”.