British retail sales rebounded far more than expected in January after December's heavy snow, but failed to ease concerns consumers will be under pressure this year from government cutbacks and possible interest rate rises. Official data showed retail sales volumes jumped by 1.9 percent on the month - more than three times faster than analysts had forecast - following December's downwardly revised fall of 1.4 percent, the worst for any Christmas on record.
An uncertain economic outlook is posing a dilemma for the Bank of England which is trying to juggle the demands of reining in inflation, which at 4 percent is double its target, while not harming economic recovery by raising interest rates too soon. Economists warned that it was too early to tell how consumers were facing up to a value-added tax rise last month and public spending cuts this year.
Economists expect consumer spending to be under pressure throughout 2011. High inflation and limited wage growth is likely to focus spending on essentials, and unemployment is forecast to rise due to job losses from public spending cuts. The Office for National Statistics (ONS) said it was hard to disentangle the effects of two successive annual rises in VAT, combined with unusually harsh winter weather in January 2010 and December 2010.
However, there was some anecdotal evidence that shoppers made major purchases before the VAT rise took effect on January 4, and that sales fell off thereafter - a pattern also noted by trade body the British Retail Consortium. British department store John Lewis, a favourite of middle-class Britons, posted a fourth consecutive week of lacklustre sales, adding to evidence consumers are cutting back on spending. Year-on-year, retail sales volumes were up by 5.3 percent in January, their biggest annual rise since November 2004. But last month's data was flattered by the comparison with sales in January 2010, when harsh weather heavily disrupted trade.
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