January’s retail sales report suggests that UK consumers are joining in the burst of optimism experienced by businesses in the new year.
Retail sales, like business sentiment, had been stagnating for most of the second half of 2019. The sharp increase in January suggests this may have been due to the same political uncertainty that hampered business sentiment.
ONS seasonal adjustments may have added more noise than signal over the past couple of months. Unadjusted core retail sales actually fell 29.1% month on month, which is typical for January.
Nonetheless, January’s adjusted of 1.6% increase comes after an adjusted fall of 0.8% in December, when the unadjusted figure was, confusingly, actually showing fairly decent growth.
This noise is understandable given the political uncertainty in Q4, changes in consumer shopping habits, and black Friday timing.
However, in this instance, the adjusted December and November figures may have given an overly negative impression of UK consumption.
In isolation, you’d be tempted to apply the usual caveats and disregard retail sales as one data point in a volatile series. However, other incoming UK data also suggests a strong pickup for the economy: business sentiment has improved sharply and house price growth has accelerated.
Charts: UK retail sales excluding fuel, month on month change, not seasonally adjusted.
Whatever the coronavirus shock and EU trade negotiations hold for the future, the UK economy has at least begun the year on a firm note.
Author: Ranko Berich, Head of Market Analysis at Monex Canada.