U.K. Retail Sales Unexpectedly Rise as Growth Gains Momentum

U.K. retail sales unexpectedly rose in March as warm weather boosted spending on spring clothing, adding to evidence the economy gained momentum in the first quarter.

Sales including auto fuel gained 0.1 percent from February, when they increased 1.3 percent, the Office for National Statistics said today in London. That compared with a forecast for a decline of 0.4 percent, according to the median estimate in a Bloomberg News survey.

Consumers led Britain’s recovery in 2013 and are set to bolster growth again this year as wage growth picks up and inflation slows, easing a five-year squeeze on living standards. In a sign that sales grew this month, the Confederation of British Industry said yesterday its retail-sales index rose to 30 from 13 in March.

Today’s figures “bode well for another strong quarter of GDP,” said Christian Schulz, senior economist at Berenberg Bank in London. “With more people in jobs, wage growth returning and inflation coming down, the squeeze on real incomes has ended. Households need to dip less into their savings to spend, making the upturn more sustainable.”

The pound rose after the data were published, and traded at $1.6820 at 11:12 a.m. in London, up 0.1 percent from yesterday. The 10-year gilt yield was down 3 basis points at 2.66 percent.

GDP Growth

In the first quarter, retail sales rose 0.8 percent compared with 0.6 percent growth in the fourth quarter, the ONS said. It will publish gross domestic product data for the period next week, which the Bank of England forecasts will show economic growth of about 1 percent, the fastest in four years. Retail output accounts for 5.7 percent of GDP.

Retail sales rose 4.2 percent in March from a year earlier. Excluding auto fuel, sales fell 0.4 percent on the month and were up 4.2 percent from a year earlier.

Food sales dropped 1.4 percent in March from February. Non-food sales rose 0.9 percent, led by a 3.1 percent increase in clothing, the biggest monthly gain since April 2011. Warm weather spurred demand for spring and summer fashion ranges, according to the ONS. A recovering housing market helped lift sales of household goods by 0.4 percent. Sales of auto fuel increased 4.8 percent.

From a year earlier, non-food sales jumped 9.6 percent, the biggest increase since April 2002. The surge reflected weak sales the year before, the second-coldest March on record.

The ONS said retail prices measured by the deflator, a measure of changes in shop prices, fell 0.5 percent in March from a year earlier. That’s the biggest decline since September 2009 and largely reflected discounting of auto fuel. Prices excluding motor fuel rose just 0.2 percent, suggesting stores are having to offer discounts and promotions to win customers.

Marks & Spencer Group Plc reported on April 10 that while its clothing unit had its best performance in three years in the quarter through March, it offered deeper discounts than anticipated.

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