- Monthly survey captures week following shock vote to leave EU
- Data suggest driver of U.K. growth is coming under strain
U.K. retail sales had their biggest drop in six months in June, adding to signs that the vote to leave the European Union is starting to bite.
The volume of goods sold in stores and online dropped 0.9 percent, more than the 0.6 percent decline seen in a Bloomberg survey of economists, figures from the Office for National Statistics showed Thursday. Sales excluding auto fuel also fell a larger-than-expected 0.9 percent.
The monthly survey was carried out between May 29 and July 2, meaning some responses were received in the week following the June 23 Brexit referendum. While the statistics office said it had not received evidence from retailers of a Brexit effect, a GfK survey taken after the vote showed consumer confidence falling at the fastest pace in 21 years.
Consumer spending has driven the economy to more than three years of uninterrupted growth, but Britain may now be increasingly reliant on exports as the sharp fall in the pound over the past month makes British goods more competitive on world markets.
Bank of England policy makers have signaled they are preparing to add stimulus in August. Economists in a Bloomberg survey expect gross domestic product to fall by 0.1 percent in each of the third and fourth quarters, marking the first recession since 2009.
The pound erased earlier gains, falling 0.1 percent to $1.3194 as of 10:06 a.m. London time.
Strong turnover in April and May saw retail sales rise 1.6 percent in the second quarter, meaning the sector contributed to economic output during the period. Sales rose 4.3 percent from a year earlier, boosted by events such as the European soccer championship and Queen Elizabeth II’s official birthday, the ONS said.
Food sales fell 1.2 percent from the month before, while non-food sales dropped 0.8 percent. Sales at department stores dropped 1.6 percent and clothing and footwear retailers saw sales decline 1.8 percent.
Store prices, as measured by the retail-sales deflator, rose 0.1 percent on the month and were down 2.5 percent from a year earlier. Anecdotal evidence from retailers suggests price pressures are starting to build as the pound’s deprecation pushes up the cost of imports.
“The strong suspicion is that consumers will face higher unemployment and less favorable purchasing power as inflation rises and earnings growth is limited by companies striving to limit their costs,” said Howard Archer, chief economist at IHS in London.
In a separate report Thursday, the ONS said the budget deficit narrowed more than forecast to 7.8 billion pounds ($10.3 billion) in June from 10 billion pounds a year earlier, thanks to a jump in income tax receipts. It left the deficit in the fiscal first quarter at 25.6 billion pounds, down from 27.9 billion pounds a year earlier.
Still, the fallout from Brexit is expected to hit tax receipts in the coming months. Prime Minister Theresa May has said the government has not abandoned its goal of returning the public finances to surplus, but is no longer seeking to do so by the end of the decade. Chancellor of the Exchequer Philip Hammond is due to present new forecasts later this year.