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| Record fall in high-street prices prompts spending spree | Record fall in high-street prices prompts spending spree |
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| A record fall in high-street prices put a spring in the step of British consumers last month, driving a bigger than expected rise in retail sales. | A record fall in high-street prices put a spring in the step of British consumers last month, driving a bigger than expected rise in retail sales. |
| Average store prices in February dropped 3.6% on a year earlier, the largest annual fall since records began in 1997, according to the Office for National Statistics. | Average store prices in February dropped 3.6% on a year earlier, the largest annual fall since records began in 1997, according to the Office for National Statistics. |
| Petrol registered the steepest drop, 15.5% lower than in February 2014, as the global slump in oil prices continued to feed through to UK forecourts. | Petrol registered the steepest drop, 15.5% lower than in February 2014, as the global slump in oil prices continued to feed through to UK forecourts. |
| With more money in people’s pockets, the volume of goods sold increased by 0.7% in February, according to the ONS – higher than the 0.4% monthly rise predicted by economists. It was also an improvement on January, when sales dipped by 0.3%. | |
| Sales grew across all types of stores last month but the biggest contribution to growth came from non-food shops such as department stores, suggesting that people were more willing to splash out on nonessential items. | |
| “If you wanted a demonstration that low food and energy prices are good for consumer spending, then this is it,” said Alan Clarke, economist at Scotiabank. “People are clearly not deferring their spending plans amid deflation speculation – they are spending the windfall.” | “If you wanted a demonstration that low food and energy prices are good for consumer spending, then this is it,” said Alan Clarke, economist at Scotiabank. “People are clearly not deferring their spending plans amid deflation speculation – they are spending the windfall.” |
| UK inflation is now zero, while average wage growth is running at 1.6% excluding bonuses. That means workers should be starting to feel better off, following six years of falling real pay between 2008 and 2013, when inflation consistently outpaced wage growth. | UK inflation is now zero, while average wage growth is running at 1.6% excluding bonuses. That means workers should be starting to feel better off, following six years of falling real pay between 2008 and 2013, when inflation consistently outpaced wage growth. |
| The UK is expected to slide into deflation in the coming months, as low fuel and food prices, combined with lower energy bills, trigger annual price falls. | |
| Mark Carney, governor of the Bank of England, has argued that a period of negative inflation in the UK will not amount to a dangerous deflationary spiral, where businesses and consumers put off spending because they expect prices to fall further. | |
| His view is that UK inflation will bounce back over the coming months. In contrast Andy Haldane, the Bank’s chief economist, argued in a speech last week that the downward move in inflation could be prolonged, possibly justifying another cut in interest rates. | |
| “Fears that falling prices might encourage consumers to defer purchases, risking a downward deflationary spiral, currently look very wide of the mark,” said Martin Beck, senior economic advisor to the EY Item Club, commenting on the latest ONS figures. | |
| Annual growth in retail sales slowed slightly to 5.7% in February, from 5.9% in January. This marked the longest period of sustained growth since May 2008, four months before the collapse of Lehman Brothers plunged the global economy into crisis. | Annual growth in retail sales slowed slightly to 5.7% in February, from 5.9% in January. This marked the longest period of sustained growth since May 2008, four months before the collapse of Lehman Brothers plunged the global economy into crisis. |
| David Kern, chief economist at the British Chambers of Commerce, said the February retail sales figures were a good sign for the broader economy, but showed the recovery was still heavily reliant on the consumer. | David Kern, chief economist at the British Chambers of Commerce, said the February retail sales figures were a good sign for the broader economy, but showed the recovery was still heavily reliant on the consumer. |
| Government ambitions for a recovery led by investment and exports have so far failed to materialise. | Government ambitions for a recovery led by investment and exports have so far failed to materialise. |
| Kern said: “These strong retail sales figures point to an acceleration in economic growth in the first quarter of this year. Although these figures are good news and will strengthen confidence, we must remember that the UK’s economic growth remains unbalanced and is too reliant on consumer spending. UK exporters are still facing huge challenges, particularly in the eurozone, which is our largest trading partner.” | Kern said: “These strong retail sales figures point to an acceleration in economic growth in the first quarter of this year. Although these figures are good news and will strengthen confidence, we must remember that the UK’s economic growth remains unbalanced and is too reliant on consumer spending. UK exporters are still facing huge challenges, particularly in the eurozone, which is our largest trading partner.” |
| A separate survey by the CBI echoed growth in the retail sector, with chemists, furniture and carpet retailers reporting a particularly good performance in the year to March. | |
| Rain Newton-Smith, the CBI’s economics director, said solid sales growth was expected to continue through Easter. She said: “The outlook ahead is looking bright, with household incomes buoyed by zero inflation and improving pay packets, which will continue to encourage spending. | |
| “However, the retail sector isn’t in the clear yet, with some companies, especially food retailers, still feeling the heat from stiff price competition.” |