Feb. 17 (Bloomberg) -- U.K. retail sales unexpectedly rose for a second month in January, adding to signs the economy may strengthen in the current quarter and avoid a recession.
Sales including fuel rose 0.9 percent from December, when they rose 0.6 percent, the Office for National Statistics said today in London. Economists forecast a 0.3 percent decline, according to the median of 20 estimates in a Bloomberg News survey. The deflator, a measure of annual price increases, dropped to the lowest in more than two years last month.
Bank of England Governor Mervyn King said this week that the economy should “gradually” recover this year as cooling inflation helps reduce a squeeze on consumers’ finances, though the European debt crisis will weigh on growth. An improvement in retail sales may be limited by unemployment at a 16-year high and confidence at what Nationwide Building Society says is a “subdued” level.
The “figures suggest that a recovery in high street spending is gaining momentum,” said Samuel Tombs, an economist at Capital Economics in London. Nevertheless, “more generally, with unemployment on an upward trend, credit conditions tightening and real incomes still being squeezed, the underlying conditions for consumers are still tough.”
The pound extended its gain against the dollar after the data were published. It traded at $1.5846 as of 10:44 a.m. in London, up 0.3 percent from yesterday.
Sales in the “other stores” category rose 5.9 percent in January from December, led by sportswear and sporting equipment. Household goods stores surged 4.8 percent. Sales at food stores fell 0.3 percent and sales of clothes dropped 2.1 percent.
From a year earlier, retail sales were up 2 percent in January. Excluding fuel, sales rose 1.2 percent in January from December and increased 1.9 percent from a year earlier.
Britain’s economy shrank 0.2 percent in the fourth quarter and unemployment held at 8.4 percent, the highest for 16 years. While Nationwide’s consumer confidence gauge rose to a five- month high last month, the lender said a “significant and sustained rise” is unlikely in the near term. The index is two points lower from the same month a year earlier.
London-based Kingfisher Plc, Europe’s largest home- improvement retailer, said yesterday that the global economic outlook is “uncertain.” SuperGroup Plc, the owner of the Superdry clothing chain, said on Feb. 8 that revenue growth slowed in January.
The Bank of England increased its bond-purchase target by 50 billion pounds ($79 billion) to 325 billion pounds this month to protect an economy under threat from the debt crisis in the euro area, where officials are wrangling over a bailout deal for Greece.
European stocks advanced today, pushing the Stoxx Europe 600 Index up 0.5 percent to a six-month high, as investors speculated that euro-area officials are nearing an agreement.
Germany wants finance ministers to avoid separating the 130 billion-euro ($171 billion) bailout from a planned bond swap with private creditors, officials from Europe’s largest economy said in a briefing to their country’s lawmakers. Euro finance chiefs will probably approve the package and the debt exchange at a Feb. 20 meeting in Brussels, three German officials involved in the telephone briefing yesterday said.
There are signs the U.K. may avoid a recession, defined as two consecutive quarters of contraction. Manufacturing returned to growth in January and expansion in services accelerated, reports this month showed. Inflation slowed to a 14-month low of 3.6 percent in January.
“It appears we could get some solid growth” in the first quarter, said David Tinsley, an economist at BNP Paribas SA in London. “That further supports our forecast that the U.K. isn’t going into recession, and indeed that the current round of quantitative easing in the U.K. will be the last.”
In the U.S., a report today may show the world’s largest economy will continue to expand into the second half of the year. The Conference Board’s index of leading economic indicators, which signals the outlook for three to six months, rose 0.5 percent in January after a 0.4 percent gain in December, according to the median of economists’ forecasts before the report, due at 10 a.m. in New York.
The Labor Department may say the cost of living rose 0.3 percent in January from a month earlier, according to a separate survey.
Elsewhere, German producer prices climbed 0.6 percent last month from December, the Bundesbank in Frankfurt said. The median of 21 estimates in a Bloomberg News survey was for a 0.3 percent increase.
Singapore’s exports fell for the first time in three months in January on lower electronics and petrochemical shipments, as Europe’s debt crisis crimped demand and the Chinese New Year holiday shortened the working month.
--With assistance from Mark Evans and Harumi Ichikura in London. Editors: Fergal O’Brien, Andrew Atkinson
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