The UK economic system could also be extra resilient than thought within the face of rising inflation, greater borrowing prices and banking turmoil, in response to knowledge launched on Friday exhibiting that retail gross sales and shopper sentiment have been up and enterprise exercise had expanded.

The quantity of retail gross sales, or the quantity of products bought in UK outlets, elevated 1.2 per cent in February, after a 0.9 per cent leap the earlier month in response to the Workplace for Nationwide Statistics. Analysts had predicted a smaller rise of 0.5 per cent. It was the primary time since August 2022 that gross sales rose to pre-pandemic ranges.

In the meantime, the carefully watched monitor of personal sector well being, the S&P International’s flash UK composite buying managers’ index, eased to 52.2 in March from 53.1 within the earlier month. Regardless of the drop, it was nonetheless above the 50 mark, signalling {that a} majority of companies had reported an growth.

The information counsel some financial resilience within the face of the a number of headwinds. On Wednesday official figures confirmed that UK inflation unexpectedly rose to 10.4 per cent in February, up from 10.1 per cent the earlier month and never far under its October peak of 11.1 per cent.

The next day, the Financial institution of England raised rates of interest by 1 / 4 of a share level to 4.25 per cent, marking the central financial institution’s eleventh consecutive enhance since December 2021.

International banking turmoil, with the collapse of Silicon Valley Financial institution and the hasty merger of Credit score Suisse and UBS, which is more likely to make banks extra cautious about lending, added to the challenges.

But the figures printed on Friday are “in step with the economic system faring remarkably properly” within the face of these challenges, mentioned Gabriella Dickens, economist at Pantheon Macroeconomics.

Chris Williamson, chief economist at S&P International Market Intelligence estimated that the PMIs have been in step with a 0.2 per cent growth of the UK economic system within the first quarter — an enchancment from the stagnation of the earlier three quarters.

Financial institution of England governor Andrew Bailey mentioned in a BBC interview on Friday that he anticipated Britain would now keep away from recession this yr. “The prospects for the economic system when it comes to progress are higher, significantly higher,” he mentioned.

Bailey additionally urged companies to imagine decrease inflation when setting costs.

“However what I’d say, please, is that once we are setting costs within the economic system and persons are wanting forwards, we do anticipate inflation to return down sharply this yr. And I’d simply say, please bear that in thoughts,” he mentioned.

His feedback got here as enterprise prices grew at their slowest tempo since March 2021, in response to the PMI report. Survey respondents have been probably the most optimistic about their enterprise prospects since March 2022, which Williamson mentioned confirmed “sentiment has been little affected to date by the banking sector woes”.

Separate knowledge by the analysis firm GfK confirmed that UK shopper confidence ticked up 2 factors from the earlier month to a one-year excessive of minus 36 in March.

Nevertheless, retail gross sales have been nonetheless down 0.3 per cent within the three months to February in contrast with the earlier three months, following a pointy contraction in December.

Line chart of Volume and value sales, seasonally adjusted showing Retail sales volumes and values diverge as affordability falls

“The broader image stays extra subdued, with retail gross sales exhibiting little actual progress, significantly over the past 18 months with value rises hitting shopper spending energy,” cautioned ONS director of financial statistics Darren Morgan.

Furthermore, gross sales have been boosted by low cost malls and meals outlets as value of residing pressures led customers to chop again on takeaways or consuming out, in response to the ONS.

“The approaching months should be a battle for retailers,” warned Ashley Webb, UK economist at Capital Economics. “Though the worst of the falls in actual family incomes are prior to now, the total drag on exercise from greater rates of interest has but to be felt.”

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