Record Fall in Prices Boosts UK Retail Sales

        LONDON--Retail sales in the U.K. accelerated in February fueled by a record-fall in store prices, official data showed Thursday, a fresh sign that consumer spending remained vigorous in the first quarter of the year.
        The volume sold by British retailers rose 0.7% month-on-month, according to the Office for National Statistics, compared with a revised 0.1% increase in January. Year-on-year, shops sold 5.7% more than in February 2014.
        This was above expectations by economists polled by The Wall Street Journal last week, who expected retail sales to grow at a slower pace.
        Sterling rose to a one-week high of $1.4989 at 0930 GMT following the data release.
        Robust growth in the retail sector suggests consumers are willing to keep driving the economy through the first months of 2015 despite a surprise slump in earnings growth in January. Sales by U.K. retailers have been rising in annual terms for almost two years without interruption, the ONS said.
        Households have received a boon in the form of cheap oil and food in the international markets, which have brought down the cost of living in the developed world. February sales figures showed the steepest annual fall in average store prices since records began in 1997. Petrol stations and food stores reported increased business during the month, the ONS said, but the value of their sales actually decreased due to cheaper prices. However, the main rise in quantities sold happened in other kinds of establishments, such as department stores and household goods retailers. This suggests consumers are feeling richer and are keen to ramp up spending in all kinds of goods.
        The Bank of England expects annual inflation to plunge further--it was flat in February--and to turn negative during the first half of 2015, but is confident Britons view falling prices only as a temporary windfall. This means consumers are unlikely to hoard money waiting for prices to drop, which is the dreaded consequence of prolonged deflation.
        U.K. Prime Minister David Cameron and his Conservative Party are keen to highlight positive economic data ahead of a closely-fought general election in May. In an address Wednesday in front of the British Parliament, Mr. Cameron underscored how low inflation was lifting living standards and allowing households to breathe after years of falling wages.
        However, economists are concerned the U.K. economy is too reliant on consumers and the service sector, which could endanger the recovery once the effect of low inflation wears off. The manufacturing sector registered an unexpected dip in production in January, official figures showed this month.
        Write to Jon Sindreu at jon.sindreu@wsj.com and Nick Winning at nick.winning@wsj.com
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        (END) Dow Jones Newswires

        March 26, 2015 06:00 ET (10:00 GMT)

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