Jul 23, 2015
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Economists say fundamentals strong despite British retail sales dip

Jul 23, 2015

British retail sales suffered an unexpected dip last month, wrong-footing economists who said rising wages and lower prices still pointed to strong prospects for consumer spending, a mainstay of the country's growth.

Sterling slid half a cent against the dollar after the Office for National Statistics reported a 0.2 percent fall in June retail sales on Thursday, prompting traders to reconsider bets on a Bank of England rate rise before the end of the year.

Foto: Reprodução

Annual retail sales growth fell to its lowest in nine months at 4.0 percent, down from 4.7 percent in May and well below the forecasts of economists polled by Reuters.

The data adds to uncertainty about how strongly Britain's economy is bouncing back from a weak patch at the start of the year, after figures last week showed an unexpected rise in the unemployment rate for the first time in more than two years.

"The retail sales numbers are slightly disappointing relative to consensus ... (and) may take some wind out of the sails of an increasingly hawkish market, but not, we suspect, for long," said Liz Martins, UK economist at HSBC.

Bank of England policy discussions released on Wednesday showed a growing number of policymakers were edging towards voting for a rate hike, and Governor Mark Carney said on Tuesday that this could come into focus around the turn of the year.

Policymakers are relatively bullish about the economic outlook for Britain, but are divided over the robustness of a recent pick-up in wages which is needed to sustain growth and return rock-bottom inflation to more normal levels.

Britain's headline measure of consumer price inflation headed back towards a recent 55-year low in June, while the retail sales data showed that average prices in stores were 2.9 percent lower than a year earlier.

Overall consumer spending in cash terms in the three months to June was just 1.3 percent up on a year earlier, the weakest growth rate for a calendar quarter in more than two years.

Nonetheless, economists were confident that lower prices, the fastest wage rises in five years and high levels of employment would help sales pick up from what they viewed as a temporary dip in an often-volatile series of data.

Martins said she expected data next Tuesday to show that growth in Britain's economy as a whole rose to 0.7 percent in the second quarter from 0.4 percent in the first.

Figures from the British Retail Consortium last week gave a contrasting picture to Thursday's numbers, showing some of the strongest growth in two years as warm weather and clothes sales boosted spending in late June and early July.

The ONS data showed some support from clothing sales. But it reported a bigger drag from falling sales of household items, furniture and other goods.


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