British retail sales jump despite surge in inflation

British retail sales jumped unexpectedly in April as shoppers loaded up on tobacco, likely a blip in an otherwise bleak trend that has driven consumer confidence to all-time lows amid a worsening cost-of-living crunch.

Retail sales volumes rose 1.4 per cent month on month after a 1.2 per cent drop in March, the Office for National Statistics said.

Economists polled by Reuters had expected a 0.2per cent monthly fall.

The wider picture remains disconcerting. Retail sales in the three months to April fell 0.3 per cent, after a 0.7 per cent drop in March. Compared with a year ago, sales volumes were 4.9 per cent lower, marking the biggest annual drop since January 2021.

Earlier on Friday, Britain’s longest-running gauge of consumer confidence, the GfK survey, fell to its lowest since records began in 1974.

British consumers were hit last month by a double whammy of surging household energy costs and higher taxes, and data published this week showed inflation hit a 40-year high of 9.0 per cent.

The Bank of England thinks inflation will climb above 10 per cent later this year.

“So far, the conflicting signals coming from the data are consistent with our call that the UK will stagnate in Q2,” said economists from Berenberg Bank. Sterling was little changed against the dollar after the data.

The ONS said food store sales rose by 2.9 per cent in April, largely driven by strong sales of alcohol, tobacco and ‘sweet treats’.

This was “possibly due to people staying in more to save money,” ONS statistician Heather Bovill said.

Online clothes sales also did well as people got ready for summer holidays and weddings, she added.

Leading supermarket groups including Tesco and Sainsbury’s have warned of lower profits this year and Premier Foods, the maker of Kipling cakes and OXO stock cubes, said it would raise prices of its products.

“Overall (the data) will still leave the BoE in the same bind, behind the curve on inflation, but fretting over a potentially sharp slowdown, above all in consumer spending,” said Marc Ostwald, chief economist at brokerage ADM Investor Services.

British home prices will rise further over the next few years but a cost of living crisis coupled with increasing mortgage rates will keep the pace in check, a Reuters poll of housing market experts found.

The Bank of England was the first major central bank to raise interest rates, taking Bank Rate from a pandemic-era low of 0.10 per cent to 1.00 per cent since December, and it is widely expected to do more soon.

When asked what interest rate would cause a significant slowdown in activity, the median was 3.00 per cent, but according to a separate Reuters poll of economists it will only reach 1.75 per cent next year.

“We expect a rise in Bank Rate to 3 per cent to cause a 5 per cent drop in prices and a slump in transactions. But a rise in Bank Rate to 2.5 per cent would probably be sufficient for prices to stagnate and transactions to slow,” said Andrew Wishart at Capital Economics.

Britons are facing a cost of living crisis as renewed COVID lockdowns in China and Russia’s invasion of Ukraine have disrupted supply chains that were only just beginning to heal after the pandemic, sending global inflation skyrocketing. They are also reeling from an April 54 per cent increase in energy prices - which the BoE thinks will go up another 40 per cent in October - as well as higher taxes.

“The post-pandemic surge in buyer activity is now beginning to peter out in response to rising interest rates and cost of living, but low stock levels mean that it has enough momentum to keep going at a slower rate into the first half of next year,” said Mike Scott at estate agency Yopa.

Medians in the May 11-20 poll suggested home prices would increase 6.5 per cent this year, 2.9 per cent next year and 3.0 per cent in 2024. In a February poll those forecasts were 4.0 per cent, 3.0 per cent and 3.0 per cent.

But that will lag general inflation, which was a 40-year high of 9.0 per cent in April. Earlier this month the BoE said it could be more than 10 per cent later this year.

In London, long a Mecca for foreign investors, prices were expected to rise 5.0 per cent this year, 3.1 per cent in 2023 and 4.0 per cent the year after. That was an increase from the respective 2.4 per cent, 2.3 per cent and 3.8 per cent predicted in February.

“Due to wider international demand, especially, London will outperform the UK national market in 2023 and in 2024,” said Tony Williams at Building Value.

The average price of a home nationwide was 360,101 pounds ($448,974) in April, according to property website Rightmove, and the average asked from a first time buyer was 220,466 pounds.