Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
British retail sales rose 0.7 per cent in March, surpassing forecasts, as the surge in petrol prices unleashed by the Iran war prompted motorists to stock up on fuel.
Friday’s figure for sales volumes from the Office for National Statistics was far above the 0.1 per cent expected by economists and followed a downwardly revised 0.6 per cent decline in February.
The report is the first official data showing how consumers responded to the outbreak of war in the Middle East, which sent energy prices soaring and mortgage rates higher.
“Fuel sales rose sharply on the month, with retailers reporting that motorists stocked up on fuel as prices rose,” the ONS said, adding that fuel sales volume climbed 6.1 per cent in March.
It comes as a survey published on Friday by the Bank of England showed that nearly two in three companies expect to raise prices in the coming year in response to higher energy prices triggered by the war in the Middle East.
Companies said that they expected the price of their own goods and services to rise by 4.4 per cent on average in the year ahead, jumping from 3.7 per cent in March and the highest reading since January 2024. The figure is up a full percentage point from February, before the war.
“Firms seem to be planning to rapidly pass rising costs through to retail prices,” said Rob Wood, chief UK economist at Pantheon Macroeconomics. The Decision Maker Panel Survey “suggests that rate setters need to focus more on inflation surging than growth weakening”, he added.
Wood expects all BoE rate setters to vote to keep interest rates on hold at 3.75 per cent next week, but warned that the balance of risks “now skews to a hawkish direction” as some members may feel they have seen enough to push for a rate increase now, or enough to signal that they will do so in June. Inflation accelerated to 3.3 per cent in March from 3 per cent in February, according to data published on Wednesday.
The ONS data showed that alongside the steep increase in fuel purchases, clothing retailers enjoyed a pick-up in sales, which they attributed to better weather. Computer and telecoms stores also reported an increase in sales volumes thanks to new product launches, the ONS said.
Excluding fuel, sales volumes were still 0.1 per cent below their level in February 2020, before the Covid-19 pandemic.
The strong rise in sales boosted by fuel purchases “is unlikely to be repeated in April”, said Ashley Webb, economist at Capital Economics.
Weaker consumer confidence and expectations that unemployment will rise “suggest annual real retail sales growth will stagnate before long”, he added.
The response by consumers to the energy shock echoes that of UK businesses. UK business activity rose more than expected in April as companies rushed to secure purchases amid fears that prices would rise even higher and supply shortages would worsen, a survey published on Thursday showed.
In the three months to March, a less volatile measure, sales volumes were up 1.6 per cent compared with the previous three-month period, driven by strong spending in January, the ONS said. This suggests the retail sector made a solid contribution to economic growth in the first quarter.
But with the energy shock from the conflict still affecting households, consumer confidence dropped to its lowest level since 2023 in April amid concerns over the cost of living, according to a survey published on Thursday from research company GfK.
Martin Beck, chief economist at WPI Strategy, said: “March may prove a high-water mark for the time being.”
He added that “rising energy costs linked to the turmoil in the Middle East risk squeezing household budgets and denting consumer confidence just as momentum was beginning to build”.
