Deflation in shop prices is accelerating but retail sales continue to grow by volume
Prices in Britain’s shops fell at the sharpest rate since records began in February, according to the Office for National Statistics.
Average store prices in the UK were 3.6pc lower in February than a year earlier, largely due to the sharp fall in the cost of petrol amid collapsing oil prices. This was the sharpest shop price deflation since the ONS started records in 1997.
Retail sales by volume, meanwhile, smashed expectations by increasing 0.7pc in February. This was the 23rd consecutive month of growth and brought the year-on-year increase to 5.7pc. Economists had expected a 0.4pc monthly rise and 4.7pc annual increase. The latest figures also painted a brighter picture for January, revising a 0.3pc fall to a 0.1pc rise for the month.
The figures also showed the growth was broad-based with all types of shop registering rises in sales by volume.
Paul Hollingsworth, UK economist at Capital Economics , said that while February’s figures indicate that “the recovery in spending has got back on track”, retail sales in the first quarter of 2015 are unlikely to match the “whopping” growth seen in the final three months of last year.
“Nonetheless, with real wages now posting sustained rises, consumer confidence high, and unemployment low, the prospects for spending this year remain bright,” he added.
Alan Clarke, a strategist at Scotiabank, said the figures showed that the prospect of deflation was not deterring consumer from making purchases. “People are clearly not deferring their spending plans amid deflation speculation – they are spending the windfall,” he said.
A separate survey by the Confederation of British Industry also showed a bounce-back in sales following disappointing growth in February.
Its survey of 126 firms showed volumes grew solidly in the year to March, with most retailers optimistic of further sales growth.
“Sales have recovered following a tough month in February for retailers, and we expect solid growth to continue through Easter,” said Rain Newton-Smith, the CBI’s Director for Economics. “The outlook ahead is looking bright, with household incomes buoyed by zero inflation and improving pay packets, which will continue to encourage spending.”
The CBI said 34pc of retailers believed sales volumes were up on a year ago, while 15pc said they were down. The rounded balance of 18pc was a sharp increase on last month’s positive reading of 1pc, although it was still below expectations for a rise to 27pc.
This article was written by Denise Roland and Szu Ping Chan from The Daily Telegraph and was legally licensed through the NewsCred publisher network.