Fears of a double-dip recession fade as retail sales rise in January

Experts still expect a testing year ahead despite positive figures

Fears over a double-dip recession appear to have receded after the high street enjoyed surprisingly robust trading last month, boosted by continued hefty discounting and catch-up shopping after December's snow.

But industry experts still expect a testing year ahead for retailers, with continued pressure on household budgets and mounting fears over inflation and unemployment, particularly in the public sector. Confounding fears of an early new year "bloodbath", mid-market retailers delivered like-for-like sales up 9.1 per cent in January, BDO's High Street Sales Tracker found.

The British Retail Consortium is also expected to report positive underlying sales growth for the sector in January, but its closely-watched monthly figures are not expected to be quite as bullish.

The better-than-expected start to the year for retailers will dampen expectations that the UK may slip into a double-dip recession this quarter, following economic output falling by 0.5 per cent in the final three months of 2010.

The accountancy firm BDO's retail survey found a strong performance strong across fashion, non-fashion and homewares chains in January, which grew sales by 10 per cent, 6.8 per cent and 10.5 per cent, respectively. Non-stores sales, primarily online, surged by 49 per cent, the highest growth rate for nearly a year. BDO estimates the internet now accounts for a £1 in every £5 spent by consumers.

Don Williams, BDO's national head of retail and wholesale, said: "The gloom can be over-played. It has not been a bloodbath on the high street."

He also noted the impact of the heavy snowfall in December that severely disrupted pre-Christmas trading. Mr Williams said: "There is an overhang of spending from before Christmas when people could not get to the shops because of the snow."

Retailers from HMV, the entertainment and book retail group, to Mothercare, the maternity specialist, blamed the snow for profit warnings and dire trading. BDO also cautioned that January was a "month of two halves" for retailers surveyed, which have sales between £5m and £500m. For instance, homewares chains enjoyed sales up by 27.9 per cent and 7.7 per cent, respectively, in the first and second weeks of the month, but sales actually fell by 2.3 per cent and 1.7 per cent in the second half of the month.

This is partly explained by UK consumers spending freely on big-ticket items before VAT went up to 20 per cent on 4 January, as well the extra bank holiday on Monday 3 January.

Mr Williams said: "This year has had a healthy start thanks to promotional activity around the VAT rise and the New Year bank holiday falling on a shopping day."

However, BDO pointed out that many retailers' sales were also flattered by being up against weak sales in January 2010, which was characterised by heavy snowfall, particularly in the middle of the month.

This trend towards slower sales growth appears to have been borne out by John Lewis, the department store and so-called bellwether for the sector. While John Lewis boasted barnstorming sales for much of last year, on Friday it said its sales dipped for the second successive week. Andrew Murphy, the retail director at John Lewis, said: "The year ahead promises to be even more testing, but we are budgeting for growth."

Some industry experts predict that the polarisation between the best-performing retailers over Christmas and those that struggled may be a feature of this year's trading.