Stronger US retail sales
US retail spending picked up in February, with the Commerce Department reporting a solid rise in sales on April 1. Strong demand for vehicles, clothing and personal care items helped push overall retail sales up 0.6% from January, marking the biggest monthly gain since last July.
Meanwhile, January’s figure was revised to a 0.1% decline. Economists had expected retail sales to increase 0.5% in February. Auto sales rebounded 1.2%, supported by promotions and discounts. Electronics and appliance stores saw a 0.5% rise, while clothing and accessories retailers posted a 2.0% jump. Online and other non-store sales climbed 0.7%.
Part of the broad improvement reflected larger tax refunds, which were roughly $350 higher through March 20. The February data do not yet capture the effects of the Iran conflict. Economist caution that a prolonged war and further increases in gasoline prices could erode some of the anticipated boost to consumer spending and the broader economy from recent tax cuts.
Eurozone inflation up
Meanwhile, energy markets have pushed eurozone inflation above the European Central Bank’s 2% target for the first time since November. The jump in energy costs fed directly into March inflation, which climbed 2.5% across 21 European countries, up from 1.9% in February and just below the 2.6% economists had expected. Energy costs rose 4.9% according to Eurostat data released on March 31.
Brent crude has surged more than 50% since the US and Israeli strikes on Iran on February 28, pushing prices above $100 a barrel and keeping oil markets volatile as traders assess whether the US might leave the conflict without reopening the Strait of Hormuz.
Despite the headline increase, core inflation, which excludes volatile food and energy, eased slightly to 2.3% from 2.4% in February.
The ECB now faces a dilemma on whether to raise interest rates to prevent energy driven pressures from spilling over into broader prices. High energy costs typically push up the price of others, said Commerzbank’s chief economist Joerg Kraemer, who expects headline inflation to exceed above 3% by May unless the conflict de-escalates quickly.
War threatens UK growth outlook
Finally, the UK ends 2025 with flat growth as war risks threaten 2026 outlook. According to official figures released on March 31, the UK ended 2025 with almost no economic momentum, underscoring the difficulty the government faces in sustaining growth this year as the Iran war threatens to fuel inflation and weaken demand.
The Office for National Statistics (ONS) reported that Gross Domestic Product (GDP) grew by just 0.1% in the final quarter of the year, matching the modest 0.1% expansion in the third quarter.
The Organisation for Economic Cooperation and Development (OECD) sharply downgraded its forecast for 2026, cutting the UK growth forecast to 0.7% from 1.2%, the steepest revision among major economies. The ONS revised up its estimate for a full year 2025 to 1.4%, slightly higher from a previous estimate of 1.3%. On an annual basis, the economy expanded 1% in the fourth quarter, 0.1% lower than the year before. Growth was driven by an of 1.2% increase in production, offset by a 2% drop in construction and stagnation in the services sector.
This article does not constitute legal and, or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
