The week ahead 24 February 2025 - Retail sales exceed expectations in January
What to watch out for in the UK economy and property market this week.
UK retail sales increased by an impressive 1.7% month-on-month in January. This was well above the consensus forecast of a 0.3% rise. However, the December figure was revised downwards from -0.3% to -0.6%. The strong January data owed much to food store sales, which were up 5.6% m-on-m. ONS said food store retailers attributed the rise to more people eating at home in January. Non-store retailing (which is mostly internet shopping) increased by 2.4%, although online’s overall share of retail sales declined due to faster growth for stores. Separately, there was an improvement in consumer confidence, which increased from -22 in January to -20 in February according to GfK.
In other news, the UK preliminary composite PMI figure for February stood at 50.5, which was slightly lower than January at 50.6, but matched the consensus forecast. The convention of the index is a reading over 50 points to growth for the commercial side of the economy. Separately, there was a stronger than expected increase for UK CPI inflation, which rose from 2.5% in December to 3.0% in January. Economists had been predicting 2.8%. The news will complicate the task of the Bank of England rate setters who are facing both a flagging economy and higher inflation.
The latest MSCI UK Monthly Property Index showed capital values increased again for the industrial and retail sectors in January, but at the slowest pace since August. Both rose by 0.2% m-on-m, compared to 0.9% for industrial in December and 0.7% for retail. Offices saw values fall by -0.1%. Given the economy is now several months into a slowdown, and the 10-year Gilt yield has seen volatility, a deceleration for property in January is unsurprising. Sentiment across the property market has been cautious so far this year, so one could argue it is encouraging that two of the three major sectors still saw growth in January, despite the headwinds.
This week sees Nationwide release its UK house price index data for February. We are currently in a complex period for the housing market with a mix of negative and positive pressures. In April, the new and increased Stamp Duty Land Tax regime comes into force, so we are expecting a flurry of buying activity during March. Also, the Bank of England Base Rate cut earlier this month will have helped the market. However, on the downside, consumer sentiment is weak and the economy is in a slowdown. Overall, we are predicting another increase for house prices in February, but at a lower rate of growth than in previous months.
This week's figures
TUESDAY 25 FEBRUARY
Euro Area Economic Sentiment, January
95.2 previous
94.7 forecast
The prospect of higher tariffs on exports to the US, plus the sluggish economic backdrop, have persuaded us to forecast a fall for sentiment on the economic outlook for the Eurozone.
FRIDAY 28 FEBRUARY
US PCE Inflation, y-on-y, January
2.6% previous
2.7% forecast
Given the continued strength of recent indicators for the US economy, we believe that inflation may have accelerated slightly in January.
FRIDAY 28 FEBRUARY
Nationwide House Price Index, y-on-y, February
4.1% previous
3.8% forecast
Following the Bank of England cutting the base rate in February, we are expecting another rise for house prices, although a more uncertain economic backdrop may have slowed the pace of growth.
