March 22, 2018 / 9:39 AM / 3 months ago

Supermarkets and online shopping spur February spike in UK retail sales

LONDON, (Reuters) - British retail sales jumped in February, although doubts remain about the underlying strength of consumer demand as the Bank of England weighs when to raise interest rates ahead of Brexit.

Shoppers are seen walking past the electronic billboard at Piccadilly Circus, showing retail adverts incuding one for 'Black Friday' in London, Britain, November 23, 2017. REUTERS/Toby Melville

Retail sales volumes rose 0.8 percent from January, the Office for National Statistics said, above the consensus forecast in a Reuters poll of economists for a monthly rise of 0.4 percent, and after dropping 0.2 percent in January.

Still, looking at the three months to February, which smoothes out monthly volatility in the data, sales fell 0.4 percent - the weakest growth by this measure in nearly a year after a big drop in sales in December.

There is a risk of a further downturn in March, when snow storms brought widespread disruption across Britain.

Britain’s economy underperformed its rivals last year as higher inflation - caused by the fall in the pound since June 2016’s Brexit vote - hurt consumers’ spending power.

The Bank of England is due to announce its March policy decision at 1200 GMT and expects the consumer squeeze to ease in 2018 as inflation cools and wage growth ticks higher.

Thursday’s figures showed retail prices rose in February by 2.5 percent year-on-year, the smallest increase since January 2017.

Most economists polled by Reuters think the BoE will raise interest rates in May for only the second time since the financial crisis, spurred partly by a recovery in pay growth.

A shopper reaches for a box of tea in a supermarket in London, Britain April 11, 2017. REUTERS/Neil Hall

Official data on Wednesday showed overall wages rose at the fastest annual pace since mid-2015 during the three months to January.

The ONS said retail sales growth in February was driven mostly by supermarkets, as well as vehicle fuel and online shopping. Non-food retailers, which include department stores and clothes shops, suffered a fall in sales.

Some major non-food retailers have sought protection from creditors over the past couple of months, such as Toys R Us UK and electricals chain Maplin.

Compared with a year earlier, the ONS said February retail sales were up 1.5 percent versus expectations of a 1.3 percent rise, the ONS said.

Last month the BoE forecast real-terms household spending growth would slow to 1.25 percent in 2018 from 1.5 percent in 2017 as demand shifted towards business investment and exports.

British inflation was weaker than expected in February, falling to 2.7 percent from 3.0 percent previously, as the impact from the fall in sterling after the 2016 Brexit vote faded, easing some of the squeeze on households’ spending power.

Reporting by Andy Bruce and David Milliken

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