U.K. Retail Sales Rise More Than Forecast as Prices Slump

U.K. retail sales rose more than economists forecast in February as tumbling inflation boosted consumer confidence.

The volume of sales including auto fuel rose 0.7 percent from January, the Office for National Statistics said in London Thursday. Economists forecast a 0.4 percent increase, according to the median estimate in a Bloomberg News survey. It was the fifth consecutive gain and left sales 5.7 percent higher than a year earlier.

Consumer spending is being underpinned by the return of real wage growth for the first time since the financial crisis after a plunge in oil prices. Inflation fell to zero in February. The prices of shop goods as measured by the deflator fell 3.6 percent from a year earlier, the biggest drop since records began in 1996.

“If you wanted a demonstration that low food and energy prices are good for consumer spending, then this is it,” said Alan Clarke, an economist at Scotiabank in London. “People are clearly not deferring their spending plans amid deflation speculation -- they are spending the windfall. This is good news for growth.”

The pound extended gains against the dollar after the report and was trading at $1.4977 as of 9:41 a.m. London time, up 0.6 percent on the day. It was little changed against the euro at 73.70 pence per euro after four days of losses.

All categories of retail sales rose last month. Sales of household goods gained 1.2 percent, boosted by increasing housing transactions, the ONS said. Clothing and footwear rose 1 percent and sales at department stores climbed 1.7 percent.

Cheaper Fuel

Overall, non-food sales rose 0.9 percent, while food sales gained 0.2 percent. Sales of auto fuel climbed 0.4 percent as retailers cut pump prices. Fuel prices as measured by the deflator plummeted an annual 15.5 percent last month.

Retail sales excluding auto fuel rose 0.7 percent on the month and by 5.1 percent on the year. In the three months through February, total retail sales rose 2 percent from the period through November.

The inflation rate will probably go negative, Bank of England Governor Mark Carney has said, but will start rising later this year. Policy makers are expected to keep the benchmark rate at a record-low 0.5 percent until at least the middle of next year, derivatives contracts show.

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