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A man carries shopping bags past people queing to enter a shop in London on May 12, 2022. - Britain's economy shrank in March on fallout from soaring inflation, increasing the prospect of the country falling into recession. Official first-quarter data on Thursday showed that following solid output in January, the UK economy posted zero growth the following month and contracted by 0.1 percent in March. (Photo by JUSTIN TALLIS / AFP) Image for illustrative purpose.
LONDON, March 28 (Reuters) - British retail sales unexpectedly rose in February, figures from the Office for National Statistics showed on Friday, defying most forecasts from analysts who had predicted a fall against a backdrop of weak overall growth in the economy.
Sales volumes increased by a monthly 1.0%, driven by non-food sales, although supermarkets saw a drop after a surge in business in January, the ONS said.
A Reuters poll of economists had pointed to a monthly fall of 0.4% in sales volumes. The ONS revised January's month-on-month increase to 1.4% from an initial 1.7%.
While retail sales are volatile, the readings are likely to cheer finance minister Rachel Reeves, whose ambitions to kick-start the economy have been dogged by weak growth data since taking office last July.
"It was a positive month for household goods stores with their largest rise since April 2021, driven by hardware store sales," ONS senior statistician Hannah Finselbach said, adding clothing sales also picked up due to widespread discounting.
Separate ONS data showed British households saved more money as a proportion of their income at the end of 2024 than at any point in nearly 15 years, apart from during the COVID pandemic.
The household savings ratio rose to 12.0% in the fourth quarter of 2024, up from 10.3% in the third quarter.
That bank of savings - and the possibility it could be unlocked - is one reason why some economists think tepid economic growth can pick up later in the year.
The ONS on Friday confirmed the economy expanded by 0.1% in the fourth quarter of 2024.
Retail sales volumes for the three months to February rose by 0.3%, the first increase by that measure since the three months to November.
How the economy fares after the imposition of tax hikes on employers, higher regulated energy bills and a raised minimum wage - all taking place next month - is a key question for policymakers.
"Food inflation remains high, meaning consumers are buying less, and retailers will be feeling cautious in the build up to changes to wage costs next week," said Oliver Vernon-Harcourt, head of retail at Deloitte.
Retail sales were 2.2% higher than a year earlier, compared with the median poll forecast for 0.5% annual growth.
This week, clothing retailer Next raised its profit outlook after better than expected trading. But home improvement retailer Kingfisher said consumer sentiment had been dented by measures in the government's budget last October.
The ONS said retail sales levels remained below pre-pandemic levels.
(Writing by William Schomberg. Additional reporting by James Davey. Editing by Andy Bruce and Mark Potter)
