Surprise High Street boost lifts hope of avoiding slump

Retail sales figures for January released by the Office for National Statistics today showed the strongest increase in sales volumes since the Royal Wedding last April.

"This is very good news," said Alan Clarke of Scotia Capital. "It suggests at the very least that we will be growing by 0.5% in the first quarter and probably faster than that."

The boost was driven by sales of discounted furniture and sporting goods. An increase in mail order and internet shopping also made a strong contribution.

Economists had expected retail sales volume to contract by 0.4% on December, as people tightened their belts after their impressive Christmas spending. But in the event, sales volumes rose 0.9% over the month. And the volume of sales was 2% higher than January 2011.

Analysts said heavy discounting by retailers probably played a role.

"Consumers generally are still facing major pressures and there were many good bargains to be had so this highly likely lifted sales," said Howard Archer of IHS Global Insight.

The robust figures follow a string of other encouraging signs that the economy is picking up after contracting by 0.2% in the final three months of 2011.

Business surveys have shown an expansion this year across all the key sectors of the economy, from services to construction to manufacturing.

And the Bank of England this week forecast the UK economy will be growing at a rate of 2% by the end of this year. The Bank's Governor, Sir Mervyn King, also said that the squeeze on the public's incomes will continue to abate as inflation falls rapidly over the next 12 months. The latest CPI inflation figures showed a drop to 3.6%, down from 4.2% in December.

There are other encouraging signs from the retail sector. John Lewis said today its department store sales rose 4.1% on the year. And yesterday a survey by the Nationwide showed that British consumers' confidence rose in January to its highest level since last August. Today's robust retail figures contradict some gloomy recent reports from the high street.

But some analysts recommended caution, warning strong shopping sales did not necessarily mean people are gearing up to increase their spending across the board. "As encouraging as these data are, we caution against placing great weight on them," said James Ashley of RBC Capital Markets.