UK retail sales surge in June heat wave

Thu, Jul 23, 2009, 01:00

British retail sales jumped at three times the rate analysts expected in June as hot weather and early summer discounting boosted sales of clothing, official data showed today.

The Office for National Statistics said sales volumes rose 1.2 per cent last month, above all forecasts in a Reuters poll and more than reversing a 0.9 per cent fall in May. The annual rate picked up to 2.9 per cent, its strongest this year.

Sterling rose and gilts fell on the data as investors bet the Bank of England will decide to halt its quantitative easing programme but analysts said the data should be treated with caution.

“No one should take too much comfort from today's figures. Household retrenchment has a way to run yet, especially with unemployment rising," said Colin Ellis, European economist at Daiwa.

Official retail sales figures have proved notoriously volatile in recent months, with official data painting a much more upbeat picture than surveys.

But British retail companies also provided upbeat figures today.

Kingfisher, Europe's biggest home improvements retailer, posted better-than-expected second-quarter sales as it grew market share, boosted by the growing trend for home and garden DIY and low cost room makeovers.

British telecoms and retail group Carphone Warehouse met or just beat first-quarter revenue and customer growth forecasts and said it was optimistic consumer markets will not suffer a fresh downturn.

The central bank has already cut interest rates to a record low 0.5 per cent and embarked on an unprecedented policy to pump £125 billion into the economy by buying assets, mostly government bonds, and has said it will decide whether to extend it next month.

While there have been some signs the recession is bottoming out, policymakers have been cautious about the strength and pace of any recovery.

The ONS said clothing sales were one of the main drivers of the June increase. Textile, clothing and footwear sales rose by 4.7 per cent on the month, the biggest gain since January.

Retailers bringing forward summer sales may have also played a part, with prices in that sector on average 6.7 per cent lower than a year ago.

Overall, prices in the retail sector were on average 0.2 per cent lower on the year, the first drop since January.

Nonetheless, analysts said the data could push second quarter UK GDP figures, due on Friday, above forecasts.

Reuters