U.K. Retail Sales Unexpectedly Fall as Food Plunges

U.K. retail sales unexpectedly fell the most in 10 months in August as demand for food plunged, reversing a surge the previous month.

Sales including fuel declined 0.9 percent from July, the Office for National Statistics said today in London. The median forecast of 20 economists in a Bloomberg News survey was for a 0.4 percent gain. Food dropped 2.7 percent after increasing that amount the previous month, which was the biggest gain since April 2011.

The report contrasts with recent indicators pointing to a strengthening economy, including a factory survey today showing orders at the highest in six years. The Bank of England, which plans to keep interest rates low until the U.K. has achieved sustainable expansion, said yesterday that the recovery is “taking hold” and its staff raised their growth forecast for this quarter to 0.7 percent from 0.5 percent.

“While the data is disappointing on the month, the trends in sales continue to look solid,” said David Tinsley, an economist at BNP Paribas SA and a former central bank official. “The release today is probably a useful reminder that the economy’s progress is not going to be a one-way progression to soar-away data.”

The pound extended its decline against the dollar after the report and was trading at $1.6073 as of 11:21 a.m. London time, down 0.5 percent on the day.

Food Sales

Retailers reported that food sales “returned to a more normal level” last month after being boosted by hot weather in July, the ONS said. Excluding food, sales rose 0.4 percent.

Also driving the decline were household goods, which fell 1.6 percent, led by a 7.8 percent drop in furniture. That was partly due to the timing of a public holiday on Aug. 26 after the reporting period for the August data had ended. Furniture sales are often boosted by discounting by stores during holiday weekends. Clothing and footwear sales rose 1.1 percent.

From a year earlier, total retail sales were up 2.1 percent in August. Excluding fuel, sales fell 1 percent from July and increased 2.3 percent from the same month a year ago.

Today’s report also showed that non-store retailing surged a record 28.7 percent in August from a year earlier. The statistics office said the “exceptionally high growth” was due a weak figure in 2012 during the London Olympic Games.

Manufacturing Strength

Separately, the Confederation of British Industry said its measure of U.K. factory orders rose to 9 in September from zero, the highest since August 2007. A measure of output expectations for the next three months rose to 33 from 25, the highest since March 1995.

To cement the recovery, BOE policy makers have said they won’t raise their benchmark rate until unemployment falls to 7 percent. Governor Mark Carney says the plan is aimed at giving certainty that the BOE won’t tighten until “jobs, incomes and spending are recovering at a sustainable pace.”

Next Plc, the U.K’s second-largest clothing retailer, said this month that a decline in real earnings “will rule out a strong recovery in the consumer economy.”

While the outlook for the economy is improving, consumers may remain under pressure as inflation running at 2.7 percent outpaces wages, which grew an annual 1 percent in the three months through July. The BOE said an increase in oil prices may add to upward pressure on inflation in the near term.

Today’s report showed that the annual retail-sales deflator, a measure of changes in shop prices, fell to 1.6 percent in August from July. Excluding auto fuel, the deflator was also 1.6 percent. The deflator on food was 3.4 percent.

Before it's here, it's on the Bloomberg Terminal.