Discounting and a dash to beat VAT rise lift retail sales

Retailers posted their biggest rise in underlying sales for 10 months in January, suggesting that gloomy forecasts of a dire first quarter may be wide of the mark.

But high street chains warned that they received a boost from pent-up demand after the heavy snowfall in December, a surge in spending ahead of the VAT increase and continued heavy discounting. They also benefited from comparisons with weak sales in January 2010, when sales also suffered from heavy snowfalls.

Nevertheless, the British Retail Consortium and KPMG Retail Sales Monitor survey showed a healthy 2.3 per cent rise in like-for-like sales, which represents the best performance since the 4.4 per cent growth in March 2010.

Stephen Robertson, the director general of the BRC, said: "On the surface, this is the best sales growth since last March, but that's not the whole story. Comparisons are with a feeble, snow-hit performance a year ago."

He added: "Growth this January was driven by a relatively short but strong burst of non-food buying early in the month. Clearance discounts and a last chance to beat the VAT rise got people buying things like furniture and electricals in the first few days."

Total retail sales jumped by 4.2 per cent in January, said the BRC. Many sub-sectors, including homewares, furniture and DIY, performed strongly, although sales growth at grocery and footwear chains slowed.

Helen Dickinson, the head of retail at KPMG, said: "The divergence between food and non-food narrowed in January, partly due to the VAT rise, and interestingly it was the sectors that had been struggling over the previous quarter, including furniture, DIY and home-related areas that picked up more strongly than clothing."

The BRC-KPMG survey is the latest indicator that consumer spending is holding up better than expected, after the 0.5 per cent fall in UK economic output in the final quarter of 2010. Yesterday, the accountancy firm BDO's High Street Sales Tracker found that like-for-like non-food sales jumped by 9.1 per cent at mid-market retailers in January, although growth slowed significantly in the second half of the month. In a separate survey, MasterCard said total sales rose 3.8 per cent, driven by a bullish performances at department stores, clothing and furniture chains.

However, the BRC warned that non-food sales growth waned in the second half of January, as pressures on household budgets, from record petrol prices to the rise in VAT, hit home.

Mr Robertson said: "Later in the month sales of non-food goods slowed, particularly for bigger items, as the reality of worries about jobs and personal finances returned to customers' minds."

Ms Dickinson also had her cautious hat on. She said: "Falling disposable incomes will continue to exert pressure on sales in the first quarter of the year, traditionally the weakest period of trading as consumers cut back on spending post-Christmas."