British consumers unexpectedly boost their shopping in February

British retail sales unexpectedly rose in February, figures from the Office for National Statistics showed, defying most forecasts from analysts who had predicted a fall against a backdrop of weak overall growth in the economy.

Sales volumes increased by a monthly 1.0 per cent, driven by non-food sales, although supermarkets saw a drop after a surge in business in January, the ONS said.

A Reuters poll of economists had pointed to a monthly fall of 0.4 per cent in sales volumes. The ONS revised January’s month-on-month increase to 1.4 per cent from an initial 1.7 per cent.

While retail sales are volatile, the readings are likely to cheer finance minister Rachel Reeves, whose ambitions to kick-start the economy have been dogged by weak growth data since taking office last July.

“It was a positive month for household goods stores with their largest rise since April 2021, driven by hardware store sales,” ONS senior statistician Hannah Finselbach said, adding clothing sales also picked up due to widespread discounting.

Separate ONS data showed British households saved more money as a proportion of their income at the end of 2024 than at any point in nearly 15 years, apart from during the COVID pandemic.

The household savings ratio rose to 12.0 per cent in the fourth quarter of 2024, up from 10.3 per cent in the third quarter.

That bank of savings - and the possibility it could be unlocked - is one reason why some economists think tepid economic growth can pick up later in the year. The ONS on Friday confirmed the economy expanded by 0.1 per cent in the fourth quarter of 2024.

Retail sales volumes for the three months to February rose by 0.3 per cent, the first increase by that measure since the three months to November.

How the economy fares after the imposition of tax hikes on employers, higher regulated energy bills and a raised minimum wage - all taking place next month - is a key question for policymakers.

“Food inflation remains high, meaning consumers are buying less, and retailers will be feeling cautious in the build up to changes to wage costs next week,” said Oliver Vernon-Harcourt, head of retail at Deloitte.

Retail sales were 2.2 per cent higher than a year earlier, compared with the median poll forecast for 0.5 per cent annual growth.

This week, clothing retailer Next raised its profit outlook after better than expected trading. But home improvement retailer Kingfisher said consumer sentiment had been dented by measures in the government’s budget last October.

The ONS said retail sales levels remained below pre-pandemic levels.

Meanwhile British mortgage approvals cooled to a six-month low in February ahead of a rise in transaction taxes on many house purchases while consumer lending grew at the joint-slowest pace in nearly three years, Bank of England data showed on Monday.

Lenders approved 65,481 mortgages in February, down from 66,041 in January. This was the lowest number since August and just below the median in a Reuters poll of economists which had pointed to approvals of 66,000.

Net unsecured lending to consumers increased by slightly more than expected, up 1.358 billion pounds ($1.76 billion) in February after a 1.701 billion pound increase in January.

On an annual basis, consumer lending growth matched January’s 6.4 per cent rate, which was the lowest since May 2022.

Matt Swannell, chief economic adviser to the consultancy EY ITEM Club, said slowing mortgage approvals reflected an unwinding of a boost late last year, when homebuyers sought to purchase homes ahead of an increase in property transaction taxes in April.

“In the near term, (this) will continue to drag on mortgage activity,” he said.

In the three months to the end of February, net mortgage lending - which reflects completed transactions - grew at the fastest pace since the three months to the end of November 2022, when former prime minister Liz Truss’ aborted budget plans led to mortgage lending drying up.

While net consumer lending increased at a slower pace in February, analysts said the better-than-expected monthly increase chimed with strong retail sales data.

“Overall, the data is in line with a picture of gradual improvement in consumer spending, which should help push growth up to 0.3 per cent quarter-on-quarter in the first quarter,” said Thomas Pugh, economist at accountancy firm RSM.

Meanwhile British inflation slowed more than expected in February, bringing some relief to consumers ahead of a likely new pick-up in price growth and to finance minister Rachel Reeves before her budget update speech.

Consumer prices rose by 2.8 per cent in annual terms in February after a 3.0 per cent increase in January, the Office for National Statistics said, as clothing and footwear prices fell for the first time in more than three years.