Retail Sales Hit by Wettest February on Record But Tipped to Recover

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According to the British Retail Consortium, UK retail sale growth disappointed in February owing to wet weather, but economists say the outlook is brightening.

The BRC's February Retail Sales Monitor rose 1.1% year-on-year, down from 1.4% in January and missing expectations for a reading of 1.5%. This was below the 3-month average growth of 1.4% and the 12-month average growth of 3.1%.

"Consumer demand was dampened by the wettest February on record, translating into a poor month of retail sales growth. Not even Valentine’s Day lifted customers out of the gloom, and gifting products that typically sell well, like jewellery and watches, failed to deliver," says Helen Dickinson OBE, Chief Executive of the British Retail Consortium.

"On the sunnier side, rainy weather did brighten sales of toys, as parents looked for ways to occupy their children indoors," she adds. Food sales increased 6.0% y/y over the three months to February and non-food sales decreased 2.5% y/y.

Above: The BRC measure tends to undershoot the official retail sales measure from the ONS. Image courtesy of Pantheon Macroeconomics.

Linda Ellett, Head of Consumer, Leisure & Retail at KPMG, says the retail sector is just weeks away from big increases in labour costs and business rates, which will add to an already stressed cost agenda for retailers.

"Many will be pinning their hopes on some good news in the Chancellors’ Spring Budget this week to help kick start a spending revival on the high street," she says.

However, Ellett does expect a pick-up in retail sector fortunes in the year ahead; "as inflation continues to slow over the coming months and household finances are expected to improve, there is some light at the end of the tunnel for weary households."

Rob Wood, Chief UK Economist at Pantheon Macroeconomics, says the story isn't as bad as the headlines suggest: "after deflating and seasonally adjusting the BRC data we judge they are consistent with a month-to-month increase in the official measure of retail sales volumes of 0.5% in February."

"A rain-disrupted month does not change our view that retail sales growth will improve through 2024 as returning real wage gains boost consumer spending power. Personal tax cuts likely coming in tomorrow's Budget will help household disposable income, as will April’s near-10% rise in the National Living Wage," he adds.

Pantheon Macroeconomics thinks the recovery in disposable income will be strong enough to enable households to ramp up spending while maintaining a higher-than-usual saving rate.