UK retail sales dip in February but Q1 holds up, with darker clouds ahead

Core Insights - UK retail sales volumes fell by 0.4% in February after a strong 2% rise in January, indicating a pullback in consumer spending as shoppers stepped back from stores following January discounts [1] - Despite the monthly decline, retail sales volumes increased by 0.7% over the three months leading to February and were up 2.5% year-on-year, suggesting a resilient consumer spending trend [1] Retail Sales Performance - Online sales grew by 0.6% in February and surged by 11.4% year-on-year, with online retail's share of total sales rising to 28.2%, reflecting a shift in consumer purchasing behavior [2] - The stronger-than-expected retail sales figures for February, along with an upward revision of January's data, indicate that consumer spending was on a healthy trajectory prior to geopolitical tensions affecting the outlook [3] Consumer Confidence and Future Outlook - However, the outlook for consumer spending is deteriorating, with survey data indicating a decline in consumer confidence, suggesting a potential dip in household spending in Q2 [4] - Warning signs include a drop in household confidence to a two-year low, a major purchases balance at an eleven-month low, and a decline in the CBI's sales balance [4] - Overall, household spending is projected to rise by only 0.1% quarter-on-quarter on average from Q2 to Q4, which is half the growth rate observed in Q1 [5]