UK retail sales rebound strongly in July, ONS data shows

UK retail sales bounced back strongly in July, according to official data released on Thursday, sending sterling surging higher.

Lured onto the high street by better weather and big discounts, shoppers discarded Brexit concerns to lift retail sales 1.4% month-on-month in July after June's 0.9% decline, the Office for National Statistics revealed, a much better performance than the 0.1% increase expected by the market.

As a whole, the third quarter total retail growth of 1.1% quarter-on-quarter is down from the 1.6% in the second quarter.

July sales were up 5.9% on the same month last year, up from the 4.3% gain in June and again beating the consensus estimate of a 4.2% rise.

Just minutes after the data was released, the pound had shot up 0.85% to 1.3153 against the dollar and 0.5 on the euro to 1.1611.

Core retail sales rose 1.5% month-on-month from a 0.9% fall in June, versus the 0.4% consensus forecast; with the annual gain of 5.4% for the core figure, up from 3.9% in June that was expected to be repeated.

Sales volumes rose in all major categories, although the 3.5% leap in clothing sales was something of a rebound from weakness in a very wet June.

"These are strong numbers showing a pronounced increase in sales compared with last July," said Joe Grice, the ONS's chief economic adviser.

"Better weather this year could be a major factor with sales of clothing and footwear doing particularly well. There is also anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend. Department stores and specialist retailers like jewellers are among those reporting a good month."

Recent survey data has shown that retailers are expecting a poor August.

The latest CBI Distributive Trades survey revealed volume of retail sales is expected to decline to -19, from 15, its largest month-on-month drop in since the survey began.

Economist Sam Tombs at Pantheon Macroeconomics said consumers appeared to have been protected from the immediate fallout of the Brexit vote, noting that retailers had to continue to cut prices rapidly in order to get consumers to open their wallets, with the retail sales deflator falling 1.7% year-over-year.

But he warned that with firms intending to stop hiring and inflation set to soar, the high street "is set for a tough year" and expects the wider economy to slow in Q3 driven by sharp falls in business investment and de-stocking by firms.

He added: "July’s retail sales numbers do not have much impact on whether the economy will enter recession. Retail spending equates to about 20% of GDP, but since the vast bulk of goods are imported, surging high street spending does little to boost GDP growth."

Noting total retailing carry-over for the third quarter of 1.1% quarter-on-quarter, after 1.6% q/q in the second, Barclays said this implied an "easing in spending".

If the CBI survey's decline is realised, Barclays added, is likely to be driven by deteriorating household confidence given the outcome of the EU referendum, with confidence surveys showing a decline throughout July.

"As the impact from the referendum result sets in, confidence levels are likely to fall further, resulting in households materially slowing their spending."