Sales figures rally after January slump

High street sales figures today revealed a better-than-expected rise of 2.1% last month, but the result came after a sharp revision down for January.

The Office for National Statistics (ONS) showed figures for January were much worse than originally thought, with sales volumes down by 3% against the initial estimation of a 1.8% decline.

While the rise in February sales volumes beat market forecasts, the year-on-year increase of 3.5% was far lower than experts had predicted.

The January revision meant that the retail sector suffered its worse sales performance in a year and a half during the month.

Sales bounced back in February as the weather improved and consumers made up for a lack of spending in January.

ONS figures showed that by value, sales rose by the highest amount since the summer of 2008, up 1.9% month-on-month and by 4.9% on a year earlier.

Sales growth in non-food stores far outstripped performance in the food sector, up 8.4% by volume on a year ago against 0.5% in food.

The results reinforce news from supermarket giant Sainsbury's yesterday, which said non-food sales were growing at three times the rate of food.

Economists said the February ONS figures were not as good they appeared after the steep fall in January.

Howard Archer, chief economist at IHS Global Insight, said: "We continue to suspect that the upside for consumer spending - and hence overall economic growth - will be limited in 2010 as households still face very challenging conditions."

The comments echo a cautious outlook among retailers, with Next today becoming the latest to express concern over spending in 2010, after CBI retail sales figures earlier this week suggested that growth had slowed in March.

Mr Archer added: "It looks highly likely that consumer spending will have contracted in the first quarter of 2010, which is bad news for growth prospects given that consumer spending accounts for some 65% of gross domestic product."

Vicky Redwood of Capital Economics warned the "risk of a renewed drop in gross domestic product has not passed".

"Overall, consumers already tentatively appear to be struggling - before the full force of the fiscal squeeze has even hit," she said.