UK Sales Up Unexpectedly In Jan, Gloom Ahead

Department store chain John Lewis, however, has seen its weekly sales fall as middle-class consumers feel the pinch.

British retail sales unexpectedly rose in January as shoppers took advantage of aggressive price cuts to stock up on new clothes, books and CDs in the post-Christmas sales, but the outlook is grim.

The Office for National Statistics said sales volumes rose 0.7 percent last month, confounding analysts' forecasts of a 0.1 percent fall. Sales were 3.6 percent higher on the year.

The pound shot up more than half a cent against the dollar after the figures but economists said they still expected the Bank of England to deliver further monetary stimulus to support Britain's recession-hit economy.

"The Monetary Policy Committee is convinced that consumer spending will nosedive this year as households rebuild savings. As such we expect another 50 basis point rate cut," said Amit Kara, economist at UBS.

Policymakers have already cut borrowing costs to a record low of 1 percent to try to shore up the economy and now feel they need to take more drastic measures, such as boosting the money supply, to dig Britain out of the downturn.

Soaring unemployment, falling house prices and tight credit all threaten to dent consumer spending this year and analysts reckon it is only a matter of time before the retrenchment hits the retail sector.

A recent survey from the Confederation of British Industry showed retailers were their gloomiest ever about the prospects for sales in February.

"Anecdotal evidence suggests January spending started off very strong but tailed off as the clearance sales ended," said Vicky Redwood of Capital Economics.

SPENDING SPREE TO END?

Still, retailers fared well in January. Sales at textile, clothing and footwear stores jumped 6.1 percent on the month, the biggest rise since May 2008. Sales at other stores, such as books and CD sellers, shot up 6 percent, the biggest monthly increase since January 1988, the ONS said.

Discounting will have provided some support to volumes, but prices were down only 1 percent from a year ago in January, having been 2.8 percent lower in December, the data showed.

Reports from High Street retailers have been mixed. Sales at British home improvements store B&Q fell less than expected in the fourth quarter, as the housing market slump made Britons opt to redecorate their homes rather than move.

Department store chain John Lewis, however, has seen its weekly sales fall as middle-class consumers feel the pinch.

Experts predict things will get worse. Freezing weather at the start of this month, which brought Britain to a standstill, will have eaten into trade in February.

"Anecdotal evidence from retailers suggests that February sales have been very weak," said Tarlok Teji, head of retail at consultancy Deloitte. "Continued economic fragility has come together with the frozen weather conditions to cull people's appetite to shop, and on certain days to even get to the shops in the first place."