Strong retail sales ease City fears of slowdown

Surprisingly strong retail sales figures for January suggesting that the slowdown in the economy is still some months away have been released by the Office for National Statistics.

The ONS reported that retail sales rebounded to grow by 0.8 per cent during the first month of this year compared with December 2007, after seasonal adjustments. Sales were 5.6 per cent up on the year. This was some way ahead of City expectations.

The ONS also made an upward revision to December sales figures and the official data confirms the picture in the British Retail Consortium's survey this month of a relatively mild slowdown on the high street thus far.

Within the retail sector, there were clear winners and losers. Weak performances came from department and clothing stores, although household goods did well. Reflecting a long-term trend, non-store sales jumped because of the rising proportion of business being done on the web – up 31 per cent on a year ago.

However, analysts were quick to caution that mon-thly sales figures can be volatile and that January is the most volatile month of the year, with the effect of new year sales being a particularly random factor.

Michael Saunders, of Citi European Economics, cautioned: "The jump in Jan-uary sales partly reflects a rebound after December's sharp drop. In value terms (as opposed to volumes), retail sales in January remain a little below November's level. January volumes were boosted by further aggressive price-cutting – a symptom of weakness in consumer spending rather than strength." David Page of Investec added: "Looked at over a three-month period, the trend in retail activity has clearly softened. We expect further deceleration ahead. This will likely see the Monetary Policy Committee cut the bank rate further. But today's numbers argue for a gradual easing in policy, as implied by the Inflation Report."

Such a slower approach to rate cuts was also hinted at yesterday in a speech by Andrew Sentance, the third by a member of the MPC this week. Mr Sentance stressed the Bank's role in targeting inflation in unequivocal terms, though admitting, as did the Governor last week, that "we are expecting quite a bit of upward pressure on UK inflation from rising food and energy prices". However, he said that "an outright recession – in which economic activity falls year on year – is a remote risk for the UK".