Finally some good news for the UK economy as retail sales soar

James Andrews
Yahoo! Finance UK

UK retail sales are rising again, in fact, they’re rising faster than they have for a year. And more people hitting the shops and spending money rather than scrimping is one of the surest (and earliest) signs that things are getting better for an economy.

It’s a far cry from the position of just a few weeks ago, when the OECD and IMF (among others) seemed convinced that the UK was about to plunge back into recession.

The question is, can we trust the rise as a true bellwether of good times to come, or is this just a rare upward tick in a downward slide?

The good news

Since April began, for some reason or other everything’s been going well.

Today retail sales figures came out for March, showing that we spent 5.7% more than we did in March last year and bought 3.3% more by volume.

“[The] UK retail sales figure for March really is staggeringly good, the strongest showing in over a year,” said Richard Driver, analyst for Caxton FX.

A day before it was revealed that the number of companies in financial trouble fell 17% in the first three months of the year, with manufacturing leading the way in terms of recovery.

It wasn’t the first good news around manufacturing for the month. The latest Purchasing Manager’s Index – a key indicator of business activity – shows strong figures for both manufacturing and construction as well as strength in Britain’s biggest sector, services.

On top of that, unemployment is finally falling, house prices are rising, pay is rising, the pound is soaring and even crime is down.

What on Earth’s going on?

The problem with all this positivity is twofold: Firstly, it’s only over a very small period of time and secondly almost all of it can be explained away.

Retail sales rose largely because of warm weather and the petrol panic. “The premature warm weather … will have triggered clothing and gardening purchases,” explained Caxton FX’s Driver. The petrol panic saw fuel sales rise 4.9%.

The pound’s growth against the euro says more about how bad things have become in Spain and Italy than how wonderful things are in Britain.

Unemployment might be falling overall, but there are more people working part time because they can’t find full-time jobs than ever before, female unemployment is at a 25-year high and there are more people who have been unemployed for more than a year than at any time since 1996.

House price rises are most likely to have been driven up by a rush to beat the stamp duty holiday (which closed in late March) and London performing exceptionally rather than a genuine national improvement.

And even if there were no mitigating factors, the good news comes at a time when there are still millions unemployed, the Government is cutting spending and raising taxes, mortgage rates are rising and fuel costs have just hit new records (again).

Don’t get too down

But despite all the mitigating factors, we shouldn’t be too quick to ignore the positives. Because while you can pour cold water on a lot of the upbeat figures, they’re still a lot better than we thought.

“As ever, weak consumer confidence, high unemployment, high oil prices and the constant wave of Government austerity highlight the ongoing risks to consumer spending, but good news is good news,” said Driver.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes