British retail sales volumes rose nearly three times faster than expected in July, and a 38 per cent annual surge in corporation tax receipts pushed public borrowing down sharply, official data showed today.
The upbeat economic figures suggest Britain's recovery remains strong after unusually high second-quarter growth, but economists maintain that a slowdown is likely by early next year when sales tax rises and spending cuts are set to bite.
The Office for National Statistics said retail sales rose 1.1 per cent on the month, their strongest growth since February and well above analyst forecasts of a 0.4 per cent rise. On the year, retail sales are up 1.3 per cent in volume terms, again above forecasts of a 0.6 per cent rise.
Sterling jumped by a full cent against the dollar and half a cent versus the euro, as it allayed some concern that British consumer and business sentiment had been faltering in the face of upcoming government spending cuts.
Fashion retailer Next, Carpetright and supermarket Asda, this month all reported a cooling in demand as shoppers fret over the likely impact of budget cuts, taxes and job losses.
"The key message is that the consumer is not yet dead," said Brian Hilliard, UK economist at Societe Generale.
The government's preferred measure of borrowing, on which its fiscal forecasts are based, "public sector net borrowing excluding financial sector interventions", came in at £3.8 billion in July, £2.3 billion less than a year ago.
For the fiscal year to date, PSNB-ex stood at £44.9 billion, some £2.6 billion lower than the April-July period in 2009 and versus a full-year forecast of £149 billion.
PSNB, which private-sector economists forecast, came in more than £2 billion better than the market consensus at £3.173 billion versus £5.518 billion a year ago.
Separately, Bank of England figures showed lending to UK businesses fell for a fourth consecutive month in June and mortgage approvals hit their lowest in more than a year in July.
The sharp improvement in public finances was driven by exceptionally strong growth in receipts. Corporation tax was up 37.7 per cent, while value-added tax brought in an extra 21.2 per cent on the year.
Britain's previous Labour government raised VAT to 17.5 per cent from 15 per cent on January 1st, and the new Conservative/Liberal Democrat coalition plans a rise to 20 per cent next January.
"If the trend so far this fiscal year continues, borrowing in 2010/11 as a whole should slightly undershoot the Office for Budget Responsibility's forecast of £149 billion by £3 billion or so," said Capital Economics' Vicky Redwood.
But the Treasury quickly cautioned against reading too much into the strong receipts growth and said figures were in line with the Office for Budget Responsibility's full fiscal year forecast.
A spokesman added that the government remained committed to a programme of spending cuts which will see most government departments lose at least a quarter of their budget over the next five years.
The ONS said the retail sales gains on the month were driven by particularly strong rises in the "other stores" and "non-store retailing" categories.
The former, which includes jewellers and sports good stores, rose by 6.1 per cent on the month, the strongest growth since February 2008. Non-store retailing - primarily internet and mail order firms - rose at its fastest pace since last December.
Reuters