John Lewis says UK consumers losing fear factor

Recent forecast-beating gross domestic product data, manufacturing, construction and services sector surveys have eased pressure on the government to water down its austerity program.

"The economy has settled in a place which is just not nearly as good as it used to be," Andrew Murphy, retail director at the employee-owned chain, told Reuters on Tuesday.

"But people now don't feel scared by that, whereas three years ago they were genuinely scared about what this new reality meant."

John Lewis has traditionally been seen as a bellwether retailer but has been outperforming the wider market for about three years.

Though an industry survey last week showed UK retail sales fell unexpectedly in April, hurt by an earlier Easter this year, the underlying trend appears to be improving.

Elsewhere a Reuters poll of 61 economists taken in the past week found Britain's economy will fare slightly better than previously thought this year, reducing the chance of more asset purchases by the Bank of England.

Murphy reckons the slightly better consumer psyche will be reflected in increased spending on homewares and furniture.

"My sense is that home will strengthen a bit through this year, which is something we couldn't have said for either of the last three years," he said, also pointing to signs of life in Britain's housing market.

Separately on Tuesday a survey showed demand for housing in Britain rose to its highest in nearly 3-1/2 years in April.

John Lewis, which trades from 30 department stores across the UK, nine smaller 'at home' stores, and an online business, posted sales growth of 10.4 percent in its first quarter.

In an interview at John Lewis' London headquarters, Murphy forecast "high single figure" sales growth for the full year to end-January 2014.

He anticipates the 149-year-old firm, whose worker co-ownership business model has been lauded by Prime Minister David Cameron, will continue to benefit from capacity coming out of the market in various categories in which it trades, particularly electricals.

A raft of high street traders has gone out of business in the last three years hit by Britain's economic downturn.

Murphy said the Conservative-led government was right to pursue tough austerity policies to reduce a structural deficit but could do more to stimulate economic growth.

"What's becoming more clear is that we've been slightly short on bold and innovative ideas about how to create economic growth alongside that deficit attack," he said.

He called for infrastructure investment to be targeted to major urban centers.