UK retail sales rise more than expected on nice weather

[LONDON] UK retail sales gained more than expected in April as nice weather prompted Britons to splurge on their homes and gardens. The pound rose.

The volume of goods sold in stores and online increased 2.3 per cent after a 1.4 per cent drop in March, the Office for National Statistics said on Thursday. Economists had expected a 1.1 per cent gain. Average store-price inflation slowed.

The data suggest consumer spending, the mainstay of economic growth, is holding up in the face of rapidly increasing food and fuel costs. Retail sales declined for the first quarter in seven years in the three months through March.

The pound climbed above US$1.30 for the first time since September and was at US$1.3028 as of 9:53am in London.

Inflation accelerated at the fastest pace since September 2013 in April and workers are seeing their real earnings fall for the first time in 2-1/2 years. That may be starting to limit pricing power for retailers, as annual increases in shop prices slowed to 3.1 per cent from 3.3 per cent.

"April's jump in retail sales looks unlikely to mark the beginning of a renewed upturn in consumer spending given the sharp and increasing squeeze on purchasing power," said Howard Archer, an economist at IHS Markit.

"The suspicion is that it needs something special like markedly warmer weather to currently get consumers to really loosen their purse strings."

Retail sales rose 4 per cent compared with the year earlier. Sales excluding auto fuel gained 2 per cent on the month. The increase was driven by all sectors except department stores and clothing.

The nicer weather particularly drove demand for hardware and household goods, the ONS said. The figures are adjusted for the later-than-usual timing of Easter.

Bank of England Governor Mark Carney said last week that inflation would accelerate faster than previously forecast this year before easing in 2018 as the economy slowed. He warned of "challenging times" for consumers.

Households have in part been financing their spending by saving less and borrowing more, taking advantage of record low interest rates. They may prove less willing to keep doing that as pay fails to keep up with inflation.

BLOOMBERG