U.K. Retail Sales Rise More Than Forecast on Clothing Demand

U.K. retail sales rose more than economists forecast in September on increased demand for winter clothing and school uniforms.

Sales including fuel gained 0.6 percent from August, when they fell 0.1 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for a 0.4 percent gain. Clothes surged 2.1 percent, adding 0.2 percentage points to total sales.

While cooling inflation is easing the squeeze on Britons, any recovery in consumer spending may be kept in check as the economy struggles to recover from a recession and government budget cuts undermine sentiment. With the Bank of England’s current stimulus round finishing next month, policy makers said yesterday they were split on the need for more so-called quantitative easing to aid the economy.

The data suggest “consumers loosened their purse strings a little, albeit partly due to temporary factors,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. Still, “renewed pressure on households’ income suggests that sales volumes will struggle in the coming months.”

Within clothing, the statistics office said sales were helped by the introduction of winter collections. Retailers also reported that there was a boost “as consumers put off purchases of school uniforms until early September.”

Unemployment

The pound erased its decline against the dollar after the report was released. It was at $1.6161 as of 10:45 a.m. in London, up 0.1 percent on the day.

Furniture sales rose 3.5 percent in September, while food sales slipped 0.2 percent, the statistics office said. From a year earlier, overall retail sales rose 2.5 percent.

In the third quarter, sales increased 1 percent from the previous three months and were up 2.4 percent from a year earlier. Excluding fuel, retail sales rose 0.6 percent in September from August and gained 2.9 percent on the year.

While Britain’s economy is struggling to recover, the unemployment backdrop has been more positive than after previous recessions.

Jobless claims fell in September and the number of people in work surged to its highest since records began in 1971 in the quarter through August. The June-August jobless rate measured by International Labor Organization methods declined to 7.9 percent, the lowest in more than a year. Consumer confidence rose in September, providing “grounds for optimism,” GfK NOP Ltd. said on Sept. 28.

Consumer Squeeze

Still, while inflation is cooling, it continues to outpace annual earnings growth, which was at 1.7 percent in the three months through August. That compares with inflation of 2.2 percent in September, and the squeeze on incomes may intensify after some of Britain’s biggest power companies announced price increases in recent weeks.

Next Plc (NXT), the U.K.’s second-largest clothing retailer, said last month that sales in August and early September were “disappointing” and it remains “cautious about the economic outlook.”

The annual retail sales deflator, a measure of changes in shop prices, rose to 0.7 percent in September from 0.2 percent in August, the statistics office said. Excluding auto fuel, the deflator increased to 0.5 percent from 0.3 percent. The deflator on food sales was 2 percent.

The Bank of England said in the minutes of its October meeting, released yesterday, that policy makers have “differences of view” on the outlook. The central bank’s current stimulus round ends next month, leaving officials facing a decision over whether to expand QE again.

“Some members felt that there was considerable scope for asset purchases,” the central bank said. “Other members, while acknowledging that asset purchases had the scope to lower long- term yields further, questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy.”

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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