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UK retail sales rise, led by surge in demand for food

Aug 17 2017 12:09
Cat Rutter Pooley and David Goodman, Bloomberg

London - UK retail sales rose more than forecast in July, driven by the biggest jump in purchases of food in almost two years.

The volume of goods sold increased 0.3%, just ahead of the 0.2% gain predicted by economists, the Office for National Statistics said on Thursday. The increase in June was revised down to 0.3% from 0.6%, though the total for the second quarter was unrevised.

Sales in July were largely driven by demand at supermarkets, with food sales up 1.5%, rebounding from a 1.1% drop the previous month. Yet almost every other category of sales posting a decline. 

Figures covering the past three months show how pressure on consumers from faster inflation in the wake of the vote to leave the European Union is weighing on retailers. Annual growth in the quarter through July was 1.8%, the weakest in almost four years. 

That’s being felt by stalwarts of the British high street. Kingfisher, the owner of B&Q home-improvement stores, reported a third straight drop in quarterly sales on Thursday, citing the UK as the main source of disappointment. John Lewis Partnership, which owns the Waitrose supermarket chain as well as department stores, this week said sales across the group are slowing.

“There is some support for consumer spending coming from current ongoing decent employment growth,” said Howard Archer, an economic adviser at EY ITEM Club. “But it is questionable if this can continue in the face of weakened UK economic activity and increasing business uncertainty.”

Spending habits

The retail report follows data on Wednesday showing that real incomes fell 0.5% in the second quarter as wages failed to keep pace with inflation. Even with unemployment at a four-decade low, consumer confidence has weakened this year and shoppers are already changing their spending habits to save money.

More than half of households in a Nielsen survey published on Thursday said they’re making cost-cutting efforts, the highest proportion in two years.

According to the report, 30% of households said they switched to cheaper grocery brands to save money, the most popular method of thrift ahead of saving on gas and electricity and spending less on new clothes.

The strain on household budgets is likely to continue for some months yet, according to the Bank of England, although things may not get much worse as inflation may be near its peak. Still, economic growth is forecast to cool this year and next.

“The worst is probably over for the British consumer,” Dan Hanson and Jamie Murray, economists at Bloomberg Intelligence, wrote in a note on Thursday. “Rising inflation made for a torrid start to 2017, but the shock is already fading. While things are looking brighter for households, uncertainty is likely to mean companies remain cautious.”

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uk  |  retail sales  |  economy

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