What's going on?

Data out on Friday showed that UK retail sales beat the January Blues, as last month�s discounts helped shopping stage a comeback.

What does this mean?

After lackluster retail sales in late 2022, economists were bracing themselves for a 0.3% drop when January rolled around. But shoppers had other ideas: they proved quick on the draw with their wallets last month, snatching up discounted makeup, furniture, and jewelry in the bumper post-Christmas sales. Online stores also reaped the rewards of that spending � and fuel sales jumped too, as the lowest prices in almost a year had folk lining up at the pumps. Sure, there were a few categories dampening the mood � food and clothing each took a dip � but the overall volume of goods sold in January still came in 0.5% higher than December.

Why should I care?

Zooming in: Not a U-turn.
This uptick is welcome news, but let�s not get carried away: retail sales are still 1.4% below their pre-pandemic levels, and inflation means shoppers are getting a lot less bang for their buck right now. And that�s not set to change anytime soon: after all, inflation in the UK may have fallen to a five-month low in January, but wage growth is still trailing behind it. And with that trend likely to continue, households are in a serious pinch � especially with government support being axed and homeowners having to remortgage at higher rates. The end result: households have wound up with less cash to splash � which could be why economists see retail sales resuming a downward trend for the first half of 2023.

The bigger picture: Hikes ahead.
That outlook bodes badly given how much Britain’s economy depends on consumer spending. And it doesn�t help that the Bank of England’s economy-hitting interest rate hikes are set to continue. In fact, markets shifted after Friday�s surprise data, pricing in a higher chance of rates rising another 0.5 percentage points before the summer’s out.