British shoppers ignored worries about an impending Brexit deadline and spent heavily in March, official data showed on Thursday, supporting the country’s sluggish economy while companies were cutting back on investment.
Retail sales volumes surged by the most in nearly two-and-a-half years in annual terms, leaping by 6.7 percent. That was way above all forecasts in a Reuters poll of economists.
The increase in part reflected the slowdown in spending a year ago, when Britain was hit by the so-called Beast from the East snowstorms and icy weather, officials at the Office for National Statistics said. Warm weather in March this year helped increase spending on clothes, the ONS said.
Sterling rose on the data, reaching a session high against the euro.
Britain was originally due to leave the European Union on March 29, but that deadline was pushed back to April 12 and then again to Oct. 31 as Prime Minister Theresa May failed to break an impasse in parliament on the terms of Brexit.
The figures published by the ONS on Thursday covered the period from Feb. 24 to March 30.
“There is hope that the delay in a potential no-deal Brexit until October will allow the stronger retail sentiment to remain undiminished,” said Jeremy Thomson-Cook, an economist at WorldFirst, a currency exchange firm.
“However, a word of warning: credit card defaults in the UK have risen significantly in the first quarter and sit at the highest level since 2015, which could threaten the brighter-than-expected retail picture.”
In monthly terms, sales rose for a third month in a row, by 1.1 percent. The median forecast in a Reuters poll was for a decline of 0.3 percent.
In the first three months of 2019, a smoother reading of spending patterns, sales grew by 1.6 percent compared with the previous three months, the strongest increase since August 2018.
Consumers to the rescue
Consumer spending has supported Britain’s sluggish economy through the Brexit crisis, in contrast to businesses, which have cut back on investment. Falling inflation, rising wages and the lowest unemployment since 1975 have boosted household incomes.
However, wages after inflation are still below their peak before the financial crisis, raising questions about how long consumers can support the economy, which is struggling not only with Brexit but also with slower global growth.
The Bank of England said on Thursday that banks reported they cut back on the availability of consumer credit in early 2019 and expected more tightening in the second quarter.
The BoE has predicted the slowest overall growth in Britain’s economy for a decade this year. But BoE officials say they underestimated the resilience of British households in the face of the Brexit referendum in 2016, and Thursday’s figures are likely to further surprise the central bank.
The BoE has said it plans to raise interest rates gradually once the uncertainty about Brexit clears.
Last week, figures from the British Retail Consortium suggested shoppers had cut spending at high-street retailers for the first time in almost a year in March.
But supermarket chain Tesco said its shoppers were not being put off by Brexit.