UK retail sales strong in sunny August

Posted on September 15, 2016

File photo dated 06/12/11 of a lady carrying shopping bags as UK retail sales have rebounded from their June slump, providing some assurance that Brexit is not deterring shoppers from splashing out. PRESS ASSOCIATION Photo. Issue date: Thursday August 18, 2016. According to the Office for National Statistics, sales grew by 1.4% in July, much better than expectations for a 0.1% rise. See PA story CITY RetailSales. Photo credit should read: Dominic Lipinski/PA Wire©PA

British shoppers have kept on spending in the aftermath of the vote to leave the EU, according to the latest official data.

After a bumper July, the volume of goods sold on the nation’s high street fell slightly by 0.2 per cent in August — a smaller decline than analysts had expected.

    Compared with a year ago, sales volumes were up 6.2 per cent.

    Mel Richard, head of retail sales at the Office for National Statistics, said that the overall picture remained one of solid growth, adding: “The figures do not suggest any major fall in post-referendum consumer confidence.”

    The positive data continue a run of better than expected figures for the UK economy and increase the likelihood that the Bank of England will keep rates on hold this autumn.

    Clothing sales took a knock in August as the sunny weather meant consumers held off buying winter clothes, but this decline was evened out by rising food sales.

    Alan Clarke, economist at Scotiabank, the strong sales figures suggested that the prevailing attitude among consumers was “so much for Brexit, the sun is shining!”

    However, he added that such a strong annual growth rate was unlikely to continue for much longer. “Moving into next year, higher inflation and the likelihood of slower employment growth are likely to bear down on spending growth. So this might be as good as it gets right now,” he said.

    Household consumption accounts for about 60 per cent of the economy so the stronger sales figures have boosted hopes for overall economic growth.

    However, retail sales account only for about a third of the wider metric, so economists are still waiting to see whether households are prepared to make bigger-ticket purchases before drawing firm conclusions.

    Howard Archer, chief UK economist at IHS Global Insight, pointed out that August’s data showed a drop of 5.3 per cent in household goods, which he warned could be a sign that “consumers are warier of buying expensive items”.

    There were tentative signs in the data that the extended period of falling prices, which has enabled consumers to increase their consumption despite subdued wage rises, could be drawing to an end.

    Compared with July, average store prices were up 0.2 per cent, with the largest increases seen in clothing shops.

    UK retailers have seen their costs rise because of the combination of the introduction of the new higher minimum wage and the fall in the value of sterling.

    The question for companies though is how much of these increased costs they will be able to pass on to consumers, who have grown used to bargains, while still maintaining market share.

    On Thursday, high street bellwether Next reported falling profits and warned of challenging trading conditions to come.

    The retailer said that, after currency hedges expired, costs prices were expected to rise by about 5 per cent next year. John Lewis also reported falling profits and warned that it was likely to cut staff numbers in the future.

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