UK retail sales rebound

March 21, 2002 Posted: 9:08 AM EST

LONDON, England - UK retail sales bounced back in February, after falling two months in a row, as consumers took advantage of low interest rates and price discounts.

Sales rose 1.5 percent last month from January -- the strongest monthly growth rate in more than two years -- and jumped 5.9 percent from February 2001, the office for National Statistics said on Thursday.

Analysts polled by Reuters had expected a monthly increase of 0.5 percent and a year-on-year rise of 4.7 percent.

February's sales rise follows declines of 0.3 percent in both December and January.

The strong performance was supported by two of Britain's biggest retail operators, Selfridges (SLF) and Next (NXT), which on Thursday reported strong sales figures so far this year.

Analysts said the retail market is benefitting from increased consumer confidence, thanks to decades-low interest rates, falling unemployment and weak inflation.

But many caution that the strong sales growth may not last, especially if economy begins to overheat and inflationary pressure rises. That could prompt the Bank of England to hike interest rates to cool consumer demand, after the central bank lowered rates seven times last year to the current 38-year low of 4 percent.

"I do not think these sort of growth of consumer spending are unsustainable... Volumes are up very strongly but a lot of that strength is coming because of price discounting," Adam Chester, an analyst at Halifax, told Reuters.

"There is always the chance the [central bank] could raise rates by 25 basis points in May if the consumer sector shows no signs of slowing. But the inflation outlook remains exceptionally benign so we are certainly not in for an aggressive tightening this year."

The ONS retail figures for February showed sales volume at textiles, clothing and footwear stores rose 3.6 percent from the previous month. That was the best performance since January 2001.

Meanwhile, upmarket department store Selfridges said on Thursday total sales rose 6 percent in the first six weeks of the new financial year. It also posted a better than expected 16 percent rise in annual profit.

Next, the UK's third-largest clothing retailer, posted a 22 percent rise in profits on Thursday and said sales at stores open at least one year rose 7 percent in the first seven weeks of the financial year.

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