UPDATE 2-UK retail sales bounce in Feb after record Jan fall

Thu Mar 25, 2010 8:01am EDT

Related News

* Feb sales +2.1 pct m/m, biggest rise since May '08

* Jan sales revised down to -3.0 pct m/m from -1.8 pct

* Feb rebound led by household goods, especially electricals

* UK retailers see tough 2010, but confident of coping

(Wraps in retailers' results)

By David Milliken and Christina Fincher

LONDON, March 25 (Reuters) - A surge in demand for household electrical goods helped British retail sales bounce back in February after the worst January on record, official data showed on Thursday.

The Office for National Statistics said sales volumes jumped 2.1 percent last month, the biggest increase since May 2008 and three times as fast as analysts had forecast.

However, there was a sharp downward revision to January, when late returns and changes to the way the statistics office processes the data meant the initial estimate of a 1.8 percent fall was changed to a drop of 3.0 percent, the biggest since June 2008.

That meant February sales were up 3.5 percent in annual terms, only slightly above economists' forecast of a 3.2 percent rise.

"The sharp increases are less impressive than they look, given that January's falls were revised far bigger," said Vicky Redwood at Capital Economics.

Sterling briefly spiked as much as half a cent against the dollar GBP= and hit a one-month high versus the euro EURGBP=, but then pared gains as traders digested January's heavy downward revision.

Britain's retail sales series tends to be volatile on a monthly basis, and interpretation has been complicated by the incorporation of fuel sales into the main series and a rise in value-added tax in January.

January also saw Britain's iciest weather in 30 years, forcing many shops and businesses to close and making it hard for shoppers to travel.

"Trying to discern an underlying trend from the past few months is nigh on impossible," said Philip Shaw, economist at Investec.

RETAILERS REASSURE

Strong results from Next (NXT.L), Britain's second-largest fashion chain, and Kingfisher (KGF.L), Europe's biggest home improvements store added to hopes that retailers could weather what is expected to be a slow recovery. [ID:nLDE62O0H6]

Britain is coming out of its deepest recession since World War Two and is facing headwinds from an impending squeeze on government spending and an ongoing reluctance by banks to lend.

"Given the extent of the decline in January, these numbers merely represent a rebound," said Peter Dixon at Commerzbank.

"They are therefore not truly indicative of the underlying strength of the consumer, who remains under pressure from deleveraging and sluggish income growth and employment prospects."

On the plus side, interest rates have been slashed to a record low of 0.5 percent and are expected to remain at this level for while, and the Bank of England says its 200 billion pounds of quantitative easing is still working its way through the economy.

Household goods sales surged in February, rising by 11.2 percent, the biggest monthly increase since records began in January 1988. Sales of electrical items did particularly well.

Excluding fuel, retail sales volumes rose 1.6 percent on the month and were up 5.4 percent on the year, the fastest annual growth since May 2008.

An easing of price pressures on the High Street may have added to consumers' willingness to splash out. The retail sales deflator fell to 1.6 percent last month from January's 16-month high of 3.0 percent.

(Editing by John Stonestreet)