U.K. July Retail Sales Rise, Led by Demand for Clothes

U.K. retail sales rose more than economists forecast in July as demand for clothing helped lead a rebound from a drop the previous month.

Sales volumes excluding auto fuel increased 0.5 percent from June, when they fell 0.1 percent, the Office for National Statistics said today in London. The median forecast of 18 economists was for a 0.4 percent increase. Clothing and footwear sales rose 0.8 percent, while food sales gained 0.4 percent.

Food sales by value fell 1.3 percent in July from a year earlier, the first annual decline on record. That “suggests that prolonged discounting and price wars were having an effect on overall sales,” the ONS said.

While U.K. inflation has slowed to below the Bank of England’s 2 percent target, weak wage growth means many consumers are being squeezed, undermining their spending power. Marks & Spencer Plc, Britain’s biggest clothing retailer, said in July that despite “some improvement in consumer confidence, market conditions remain challenging.”

The data “provide reassurance that consumers are still willing to spend more even though an interest-rate hike is looming,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. Still, “monthly growth in sales is likely to moderate from July’s strong rate soon.”

From a year earlier, retail sales by volume rose 3.4 percent in July, the statistics office said. When auto fuel is included, sales were up 0.1 percent compared with the previous month and 2.6 percent from a year earlier.

Budget Shortfall

In a separate report, the ONS said Britain posted a budget shortfall in July. Net borrowing was 764 million pounds ($1.27 billion) compared with 1.57 billion pounds a year earlier. That was in line with the 800 million-pound median forecast in a Bloomberg survey. Government revenue rose 3.2 percent and spending climbed 1.9 percent.

The pound stayed lower against the dollar after the data were published and traded at $1.6582 as of 9:59 a.m. in London, down 0.1 percent from yesterday.

In the May-to-July period, retail sales rose 0.3 percent versus the previous three months, according to the ONS. That’s the 17th consecutive quarterly increase, the longest period of sustained growth since November 2007, when the financial crisis was erupting in the U.K.

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