UK retail sales bounced back more than expected in March, offering a tentative sign that consumers were still spending despite persistent inflation and rising geopolitical tensions.
Retail sales volumes rose 0.7% month-on-month, recovering from a revised 0.6% decline in February and beating expectations for flat growth, according to the Office for National Statistics.
Excluding fuel, sales were up a more modest 0.2%, with much of the headline increase driven by motorists filling up ahead of rising fuel prices linked to conflict in the Middle East. Petrol sales surged 6.1% during the month.
Month-to-month changes for January and February were also both revised down by 0.2 percentage points.
There were signs of broader resilience too. Clothing sales improved as better weather drew shoppers back to the high street, while non-store retailers and household goods also posted gains. Across the first quarter, retail sales volumes rose 1.6%, adding modest support to UK GDP growth.
Lale Akoner, global market analyst at eToro, said the figures masked weaker underlying demand, as the strength was largely fuel-driven.
"With inflation at 3.3% and fuel costs rising, the cost-of-living squeeze is set to intensify,” she warned, noting this could complicate the Bank of England’s path towards rate cuts.
Pantheon Macroeconomics took a slightly more upbeat view, with senior UK economist Elliott Jordan-Doak saying this first batch of hard data on consumers’ spending since the start of the Iran war suggested households may be starting to draw down elevated savings to support spending.
He said consumers had “weathered the initial shock well”, with the report offering tentative evidence that spending could hold up through the year, even as inflation pressures mount.
Still, risks remain, with Akoner cautioning that sticky inflation and weakening growth could create a tougher backdrop for UK risk assets, while Jordan-Doak expects the fuel-driven boost to unwind in coming months as demand normalises.