July 19 (Bloomberg) -- U.K. retail sales rose less than economists forecast last month, reducing expectations that Britain was able to exit a recession in the second quarter.
Sales including auto fuel gained 0.1 percent from May, the Office for National Statistics said today in London. The median forecast of 18 economists in a Bloomberg News survey was for a 0.6 percent increase. Excluding fuel, sales were up 0.3 percent. Food sales dropped 0.7 percent.
The U.K. had the most rain for a June since 1910 last month, curbing food sales, while an extra public holiday for the queen’s jubilee celebrations didn’t give a major boost to demand. The continued weakness in consumer spending is hindering Britain’s recovery after the economy shrank in the last quarter of 2011 and the first three months of this year.
It’s “another death knell for already low hopes that the economy avoided a third successive quarter of contraction,” said Howard Archer, an economist at IHS Global Insight in London. “Conditions remain tough for consumers with inflation still above earnings growth, the jobs outlook uncertain and tighter fiscal conditions affecting many people.”
In the three months through June, overall U.K. retail sales fell 0.7 percent, the weakest quarterly performance since January-March 2010. A separate report from the Council of Mortgage Lenders showed gross mortgage lending fell 5 percent in June from the previous month.
The pound erased gains against the dollar after the reports, dropping to as low as $1.5637, before recovering. It traded at $1.5684 as of 11:36 a.m. in London, up 0.2 percent on the day. U.K. government bonds stayed lower, with the yield on the 10-year gilt rising 3 basis points to 1.5 percent.
The statistics office said the extra public holiday for the jubilee last month “appears not to have had a significant impact on retail sales.” The previous jubilee in 2002 also failed to boost consumer spending, it said.
Mitchells & Butlers Plc, the owner of the All Bar One chain, said today that trading conditions “remain challenging with a difficult consumer environment.”
Gasoline sales fell 2.2 percent in June from May, according to today’s report. Sales of clothing and shoes rose 2.5 percent as stores brought forward summer discounts that traditionally happen in July and August, the statistics office said. Primark, the clothing retail chain owned by Associated British Foods Plc, had “good” trading in the quarter through June 23, it said this month.
From a year earlier, sales were up 1.6 percent in June. Excluding fuel, retail sales rose 0.3 percent in June from May and increased 2.2 percent from a year earlier.
U.K. gross domestic product probably shrank 0.2 percent in the three months through June, the National Institute of Economic and Social Research said last week.
The Bank of England said this week that economic growth this year will be “roughly flat.” It also said it’s “less likely” inflation expectations will become ingrained in the economy. Data this week showed U.K. inflation unexpectedly slowed to 2.4 percent in June from 2.8 percent in May, moving closer to the central bank’s 2 percent target.
According to today’s report, shop prices as measured by the retail sales deflator rose an annual 0.3 percent in June, the least since October 2009. The monthly price deflator was down 1.3 percent, the biggest decline since December 2008.
Elsewhere, Spain sold 2.98 billion euros ($3.66 billion) of notes today, in line with its maximum target, and its borrowing costs surged as demand for the securities weakened.
The Madrid-based Treasury sold notes due in 2014 at an average yield of 5.204 percent, compared with 4.335 percent when they were last sold on June 7. It sold five-year notes at 6.459 percent, compared with 6.072 percent on June 21 and seven-year securities at an average yield of 6.701 percent.
Swiss exports, adjusted for inflation and seasonal swings, were unchanged in the second quarter from the first, when they climbed 0.2 percent, the Federal Customs Office in Bern said. Imports also held steady after rising 1.1 percent in the first quarter and the trade surplus widened.
In Australia, businesses grew less optimistic about near-term prospects, signaling a slowdown in the fastest-growing developed economy that economists predict will force the central bank to cut interest rates again.
The business conditions index for the next three months dropped to 5, the lowest reading since the second quarter of 2009. The second-quarter confidence index slipped to minus 2, the lowest since the third quarter last year.
U.S. initial jobs claims rose to 365,000 in the week ended July 14, while June house sales increased 1.5 percent, reversing a decline in May, according to Bloomberg surveys. The Conference Board’s index of leading economic indicators probably fell after a gain in May, another survey showed.
The Labor Department will issue the jobs claims figures at 8:30 a.m. in Washington, while the report on house sales from the National Association of Realtors is due 90 minutes later.
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