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July Retail Sales Jump Most in Five Months on Sports Gear, Beat Estimates
U.K. retail sales jumped in July by almost four times as much as economists forecast in the biggest increase for five months, as shoppers spent on goods from sports gear to watches.
Sales rose 1.1 percent from June, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 23 forecasts in a Bloomberg News survey. On the year, sales climbed 1.3 percent.
The Bank of England forecast last week that consumer spending will keep growing at a “modest rate” in coming quarters. Governor Mervyn King and other officials discussed this month whether to expand emergency stimulus to aid the recovery as the economy endures spending cuts to curb the government’s record budget deficit.
“Consumers are still in a spot where they’ve been enjoying low interest rates and a pickup in the economy,” Vicky Redwood, an economist at Capital Economics Ltd. in London and a former Bank of England official, said in a telephone interview. “Give it a few months and things will change. The economy is going to slow from now on, with the real pain coming when the fiscal squeeze starts to hit, probably early next year.”
Non-Food Sales
Retail sales increased for a third month as a 1.8 percent gain at non-food stores offset a 1 percent drop at food outlets, the statistics office said. The decline in food may show the effect of higher prices on spending, officials said.
The biggest monthly gains were at shops selling sports equipment in the aftermath of the World Cup soccer tournament, and watches and jewelry. Excluding auto fuel, retail sales increased 0.9 percent on the month and 2.4 percent from a year earlier, the statistics office said.
Next Plc, Britain’s second-largest clothing retailer, said on Aug. 4 that there has been a “noticeable cooling” in retail demand and that the consumer mood is “cautious.” The company predicts selling prices will rise between 5 and 8 percent in spring 2011 as cotton prices increase and capacity tightens.
King said last week that the U.K. faces a “choppy recovery” as the central bank predicted the economy will expand at a slower pace than it forecast in May. While unemployment fell in the second quarter, as the economy added workers at the fastest pace for 21 years, government spending reductions and planned public-sector job cuts are denting consumer confidence.
“Consumer spending is going to start flagging somewhat as consumer confidence remains fairly fragile and unemployment remains high,” said David Tinsley, an economist at National Australia Bank in London and another former Bank of England official.
Inflation was 3.1 percent in July, exceeding the government’s 3 percent upper limit, requiring King to write a letter of explanation to Chancellor of the Exchequer George Osborne on how he plans to control consumer price growth. The retail deflator showed a 1.5 percent annual price increase in today’s report.
The Bank of England held its key interest rate at a record low of 0.5 percent and its bond-purchase program at 200 billion pounds ($315 billion) on Aug. 5.
To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.
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