UK retail sales unexpectedly drop as inflation weighs

Retail sales in the UK unexpectedly fell in January, according to the latest figures from the Office for National Statistics, a sign that consumers are beginning to feel the squeeze amid a rise in inflation.

Sales were down 0.3% on the month, missing economists’ expectations of a 0.9% increase and following a downwardly-revised 2.1% drop in December.

In the three months to January, sales were down 0.4% compared to the previous quarter, marking the first fall since December 2013.

On the year, retail sales rose 1.5%, undershooting expectations for a 3.4% jump. Meanwhile, sales excluding auto fuel declined 0.2% on the month and 2.6% on the year.

The report also showed that average store prices including fuel rose 1.9% compared with January 2016, which is the largest year-on-year price increase since July 2013.

ONS senior statistician Kate Davies said: “In the three months to January, retail sales saw the first signs of a fall in the underlying trend since December 2013. We have seen falls in month-on-month seasonally adjusted retail sales, both in conventional stores and online, and the evidence suggests that increased prices in fuel and food are significant factors in this slowdown."

Earlier this week, data revealed that wages in the UK were not improving, even as inflation hit its highest level since mid-2014.

Sterling slipped to $1.2429 just after the data, from $1.2449.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "January’s further drop in retails sales after a marked dip in December suggest that consumers could now be starting to seriously rein in their spending as their spending power is increasingly squeezed.

"The hit to consumers from rising inflation was evident in the year-on-year rise in the retail price deflator rising to a 42-month high of 1.9% in January from 0.9% in June."

Ranko Berich, head of market analysis at Monex Europe, said: "It may be too early to draw sweeping conclusions about the direction of the economy from today’s Retail Sales data, but it certainly looks as if consumer spending is finally beginning to slow down after a long expansion. If this contraction continues, Mark Carney and the MPC will have their best ‘we told you so’ faces on at the BoE’s next inflation report."