Expert from Markit, Chris Williamson comments on the UK retail sales and government borrowing
“UK consumers pulled back on their retail spending in January, but its looks like the underlying trend in spending remains firm amid low prices, falling fuel bills and rising wages.
“Separate data meanwhile reveal that a surge in income tax receipts has helped push the government deficit down 7.5% on a year ago.
“Retail sales fell 0.3% in January, slightly steeper than the 0.2% fall economists polled by Reuters had been expecting. However, the decline comes on the back of strong spending growth in the closing months of 2014, fueled in part by consumers embracing the first major ‘Black Friday’ promotions in the UK. Sales had risen 1.6% in November and 0.2% in December, resulting in a 2.2% increase in sales in the fourth quarter as a whole, which was the largest rise since the spring of 2002.
“To have some pay-back as households rested their wallets in January is therefore no big surprise. Let’s not forget that sales were still 5.4% higher than a year ago in January.
“The big question is whether this represents the start of an easing trend in spending. The Bank of England certainly expects improvements in consumer spending to be a big driver of stronger economic growth this year and next.
“The Bank’s optimism seems well-placed. Consumer mood has indeed brightened so far this year. Markit’s Household’s Finance Index remains close to its January post-crisis high in February, buoyed by rising incomes, greater job security and falling prices. Official data are likewise showing wage growth slowly reviving amid record employment and falling joblessness.
“It’s difficult to see why consumer spending shouldn’t improve further against this backdrop of rising wages, fuller employment and low prices.
“It’s also encouraging to see that the recovery in incomes is also starting to have a material impact on the government’s deficit reduction plans.
“Data from the Office for National Statistics showed a surge in income tax receipts helped boost the public finances in January, reflecting a long-awaited inflow of self-assessment revenues to the exchequer. Government borrowing for the first 10 months of the current tax year fell to £74.0bn as a result, down £6bn (7.5%) on last year. The improvement is a boon to the collation government ahead of May’s general election.”
