Retail sales rise as shoppers weather high inflation

UK retail sales volumes rose at their fastest pace in nearly two years, official data showed Friday, as renewed consumer confidence helped offset the sting of high inflation and rates.

Between February and April, sales rose 0.8 per cent from the previous three months, the biggest such increase since the three months to August 2021, according to data from the Office for National Statistics.

For the month of April, retail sales volumes rose 0.5 per cent after a 1.2 per cent fall in March.

The month saw increases in both Food (up 0.7%) and non-food (up 1.0%) store sales.

“Retail sales volumes in April came in slightly better than expected, with slightly better weather helping,” commented Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club.

“No one is going to look at these figures and claim consumers are feeling flush. But at the same time the cataclysmic predictions for the UK economy in 2023 are proving very wide of the mark.

“Results from retailers themselves back this up. Earlier this week M&S reported a relatively upbeat trading update, while results from the likes of Next and Primark also show little evidence of a significant slowdown in consumer spending.”

However, Huggins noted that higher interest rates are still a concern.

“Many people are still sitting pretty on fixed rate mortgages. When they refinance they are going to find their disposable incomes drop significantly. At that point retailers may really start to feel the pinch, especially if inflationary pressures remain elevated,” he added.

The Bank of England this month lifted its key interest rate to 4.50 per cent, its 12th increase in a row and the highest in 16 years, as it seeks to dampen inflation, but risks worsening the squeeze on living standards.

Retail lenders tend to match the central bank's increases to borrowing costs, sparking higher loan repayments and denting economic activity.

Data showed this week UK inflation slowed to a 13-month low in April, but remains elevated at 8.7 per cent as soaring food prices offset weaker energy costs.

The rate is still more than four times the BoE's official 2.0-percent target.

Core inflation - which is also closely watched by the BoE and strips out volatile energy and food costs - accelerated to 6.8 per cent or the highest since 1992.

That cemented expectations of another BoE interest-rate hike, with some investors predicting it could reach 5.5 percent by year-end.

Chancellor Jeremy Hunt stressed Friday that the government's priority was tackling high inflation, even at the expense of a recession.

With Britons facing a cost-of-living crisis, Prime Minister Rishi Sunak has vowed to halve UK inflation this year - although much is down to central bank policy and market forces.

"It is a big task, but we must deliver it and we will even if it means precipitating a recession," Hunt told Sky News in reference to Sunak's pledge.

He added: "In the end, inflation is a source of instability, and if we want to have prosperity, if we want to grow the economy... we have to support the Bank of England in the difficult decisions that they take."