U.K. Retail Sales Rise as Stores Cut Prices to Lure Shoppers

U.K. retail sales rose in June as shops offered discounts to lure consumers squeezed by strengthening inflation and slow wage growth.

Sales including fuel rose 0.7 percent from May, when they dropped a revised 1.3 percent, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg survey was for a 0.6 percent increase. On the year, sales increased 0.4 percent. The statistics office said there was “anecdotal evidence” of summer sales starting earlier this year.

Consumer confidence fell last month as the economic outlook dimmed and higher fuel prices left households with less disposable income, Nationwide Building Society said today. The Bank of England left the key interest rate at a record low this month, with policy makers saying the current economic weakness may persist “for longer than previously thought.”

“On the face of it, the strong growth in sales in June looks encouraging, but there is a strong probability that these results are just a reflection of the summer sales beginning earlier than usual,” said Nida Ali, an economist at Ernst & Young’s Item Club. Still, “this is a very short-term solution and one which merely papers over the cracks.”

Discounts

The monthly increase in retail sales was led by household- goods stores, where sales jumped 2.6 percent. That was partly boosted by “big discounting” in furniture stores, according to the statistics office. Food sales fell 0.2 percent from May, while sales of clothes rose 0.6 percent.

Excluding fuel, retail sales increased 0.8 percent on the month and were up 0.2 percent on the year. Internet sales accounted for 9.9 percent of all retail sales in June, up from 6.8 percent a year earlier.

“Discounts in discretionary goods during the month appear to have been successful in inducing demand,” said Philip Rush, an economist at Nomura International Plc in London. “Insofar as this is coming at the expense of profit margins, that might explain the series of bleak reports by U.K. retailers.”

Dixons Retail Plc (DXNS) said on June 23 that the economic backdrop remains “challenging.” Marks & Spencer Group Plc (MKS), the U.K.’s biggest clothing retailer, on July 13 reported sales growth that missed some estimates as revenue from general merchandise such as apparel and furniture stagnated.

Budget Deficit

U.K. inflation was 4.2 percent in June, outpacing wage growth, which was 2.3 percent in the three months through May.

The retail sales deflator, a measure of changes in shop prices, was an annual 3.7 percent in June compared with 3.8 percent in May, the statistics office said today. Excluding auto fuel, the deflator was 2.3 percent. The food-price deflator was 5.8 percent, the highest since 2009.

In a separate report, the statistics office said Britain’s budget shortfall excluding government support for banks was 14 billion pounds ($22.6 billion) in June, little changed from the 13.6 billion pounds posted a year earlier. That compared with the 12.5 billion-pound median forecast of 13 economists.

The pound trade at $1.6147 as of 11:28 a.m. in London, little changed from yesterday.

Chancellor of the Exchequer George Osborne’s plans to reduce the deficit may be hampered by a slowing economic recovery. While the U.K. economy expanded 0.5 percent in the first quarter, growth may have slowed in the second quarter, with Markit Economics saying this month that its surveys of manufacturing and services point to gross-domestic-product growth of 0.3 percent “at best.”

“Indicators had pointed toward continued modest underlying U.K. GDP growth in the second quarter,” the Bank of England said yesterday in the minutes of its July policy meeting. They also indicated, “more tentatively, to some softening in the outlook for the third quarter.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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