U.K. Retail Sales Grew More Than Expected Before Shops Reopen

(Bloomberg) --

U.K. retail sales surged more than expected to levels higher than before the coronavirus pandemic struck even as most shops remained shut for lockdown.

The volume of goods sold in shops and online rose 5.4% in March from the month before, double the gain of the previous month, the Office for National Statistics said Friday. Economists had expected 1.5% growth.

The figures indicate pent-up strength for consumer demand in the last full month of national restrictions to control the pandemic. Those stores started reopening on April 12 as Prime Minister Boris Johnson’s government making rapid progress on immunizing the population against coronavirus.

A separate report showed the Treasury built up the largest budget deficit in peacetime history in the fiscal year that ended in March, albeit a smaller one than had been expected. A 28 billion-pound ($39 billion) budget deficit in March took the shortfall for 2020-21 as a whole to 303.1 billion pounds, the equivalent of 14.5 percent of gross domestic product, the ONS said. That may allow the U.K. to scale back planned sales of government bonds.

What Our Economists Say ...

“The stronger-than-expected retail sales figures in March point to a less severe contraction in GDP in the first quarter. It may also be a precursor to a rapid turnaround once the lockdown ends. Pent-up demand and higher savings are likely to unleash a consumer-led recovery in 2Q when we forecast the economy will expand by 5%.”

Niraj Shah, Bloomberg Economics. Click for the full REACT.

The Bank of England expects a rapid recovery from the worst recession in three centuries, powered by 150 billion pounds ($208 billion) of savings households built up when they were unable to spend. Retailers are hoping to grab a bit of that to help make up for last year’s slump.

Clothing sales jumped 17.5%, and stores that don’t sell food enjoyed 13.4% growth. Auto fuel sales rose 11.1% as travel restrictions were eased toward the end of the period. The gains capped a quarter in which overall retail sales fell 5.8% from the fourth quarter of 2020.

The outlook for April is for even stronger growth. Retail footfall in the week after lockdown eased jumped to 75% of levels seen in the same period of 2019, according to Springboard data published by the ONS on Thursday. Card transaction data from the Bank of England showed purchases of delayable goods such as clothing and furnishings surged to 89% of their pre-pandemic level.

Consumers remain cautious though, according to GfK’s confidence index. It rose just 1 point in April, and households indicated that they were slightly less willing to make major purchases.

“The improvement in the consumer mood since January is welcome, but the pandemic has hit household finances hard,” said Joe Staton, GfK’s client strategy director. “There’s every chance that as the recovery gains momentum and the numbers get stronger, confident consumers will continue to spend.”

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