FTSE enjoys best day in four months amid US price shock

BRITISH stocks had their best day since October as the FTSE 100 climbed 1.5pc after a surge in retail sales last month raised hopes that Britain’s recession may already be over.

Retail sales volumes jumped by 3.4pc in January, the Office for National Statistics (ONS) said, rebounding after a disappointing Christmas.

Shares in banks performed well, with NatWest shares rising 7pc after it posted a jump in profits.

At the same time, sticky inflation in the US raised expectations the Federal Reserve would be forced to hold interest rates higher for longer, boosting the dollar for much of the day. This is typically good for the FTSE which is heavily weighted towards businesses with significant international operations, so earnings in dollars become more valuable in sterling terms.

Prices charged by businesses in the US rose by 0.3pc between December and January, and 0.9pc compared with January last year. These are both higher than expected, raising fears inflation has not yet been completely vanquished by the Fed despite it raising interest rates to 5.5pc, the highest level in more than 20 years.

Strong consumer spending could help the UK economy return to growth in the opening months of the year, economists predict, putting an end to the recession that was officially declared this week.

Figures on Thursday revealed the economy shrank by 0.3pc in the final quarter of 2023, after a 0.1pc contraction in the previous three-month period.

James Smith, an economist at ING, said: “The bounce in retail adds another reason to expect a rebound in growth during the first quarter. The outlook for the UK consumer is improving.”

Almost all elements of retail sales expanded in January, the ONS said. Food sales volumes rose 3.4pc, department stores were up 5.4pc, household goods 1.8pc and petrol stations 5.4pc.