Rising sales and business activity point to UK economic resilience

The UK financial system could also be extra resilient than thought within the face of rising inflation, larger borrowing prices and banking turmoil, in line with information launched on Friday displaying that retail gross sales and shopper sentiment had been up and enterprise exercise had expanded.

The quantity of retail gross sales, or the quantity of products offered in UK retailers, elevated 1.2 per cent in February, after a 0.9 per cent leap the earlier month in line with the Workplace for Nationwide Statistics. Analysts had predicted a smaller rise of 0.5 per cent. It was the primary time since August 2022 that gross sales rose to pre-pandemic ranges.

In the meantime, the intently watched monitor of personal sector well being, the S&P International’s flash UK composite buying managers’ index, eased to 52.2 in March from 53.1 within the earlier month. Regardless of the drop, it was nonetheless above the 50 mark, signalling {that a} majority of companies had reported an enlargement.

The information recommend some financial resilience within the face of the a number of headwinds. On Wednesday official figures confirmed that UK inflation unexpectedly rose to 10.4 per cent in February, up from 10.1 per cent the earlier month and never far under its October peak of 11.1 per cent.

The next day, the Bank of England raised rates of interest by 1 / 4 of a proportion level to 4.25 per cent, marking the central financial institution’s eleventh consecutive enhance since December 2021.

International banking turmoil, with the collapse of Silicon Valley Bank and the hasty merger of Credit score Suisse and UBS, which is prone to make banks extra cautious about lending, added to the challenges.

But the figures revealed on Friday are “per the financial system faring remarkably effectively” within the face of these challenges, mentioned Gabriella Dickens, economist at Pantheon Macroeconomics.

Chris Williamson, chief economist at S&P International Market Intelligence estimated that the PMIs had been per a 0.2 per cent enlargement of the UK financial system within the first quarter — an enchancment from the stagnation of the earlier three quarters.

Financial institution of England governor Andrew Bailey mentioned in a BBC interview on Friday that he anticipated Britain would now keep away from recession this 12 months. “The prospects for the financial system by way of progress are higher, significantly higher,” he mentioned.

Bailey additionally urged companies to imagine decrease inflation when setting costs.

“However what I’d say, please, is that once we are setting costs within the financial system and persons are trying forwards, we do count on inflation to come back down sharply this 12 months. And I’d simply say, please bear that in thoughts,” he mentioned.

His feedback got here as enterprise prices grew at their slowest tempo since March 2021, in line with the PMI report. Survey respondents had been essentially the most optimistic about their enterprise prospects since March 2022, which Williamson mentioned confirmed “sentiment has been little affected up to now by the banking sector woes”.

Separate information by the analysis firm GfK confirmed that UK consumer confidence ticked up 2 factors from the earlier month to a one-year excessive of minus 36 in March.

Nonetheless, retail gross sales had been nonetheless down 0.3 per cent within the three months to February in contrast with the earlier three months, following a pointy contraction in December.

“The broader image stays extra subdued, with retail gross sales displaying little actual progress, significantly during the last 18 months with value rises hitting shopper spending energy,” cautioned ONS director of financial statistics Darren Morgan.

Furthermore, gross sales had been boosted by low cost shops and meals retailers as value of residing pressures led customers to chop again on takeaways or consuming out, in line with the ONS.

“The approaching months should be a wrestle for retailers,” warned Ashley Webb, UK economist at Capital Economics. “Though the worst of the falls in actual family incomes are prior to now, the complete drag on exercise from larger rates of interest has but to be felt.”