RETAIL sales have expanded at their fastest pace in more than two years, adding to hopes that the “feel-good” factor on the high street has helped Britain’s economic recovery extend into the third quarter.
While the recent heatwave saw shoppers clamour for food, alcohol and summer clothing, economists said last month’s better-than-expected figures were also boosted by the royal birth and Andy Murray’s Wimbledon victory.
Citi economist Michael Saunders said: “Even if volumes slip back a little in coming months, the overall trend in third-quarter retail sales, and indeed in GDP, is likely to remain pretty strong.”
According to the Office for National Statistics (ONS), retail sales volumes during July were 3 per cent higher than a year ago, driven by the highest increase in food sales since April 2011.
The findings chime with a recent survey from the Scottish Retail Consortium, which said total sales north of the Border grew 4 per cent year-on-year last month, ahead of the 3.9 per cent growth recorded for the UK as a whole.
British Retail Consortium director-general Helen Dickinson said the “very strong” sales figures “demonstrate just how well retailers have responded to the recent good weather”.
She added: “These results add to the signs we are seeing of a tentative recovery. UK retailers still face challenges, but the outlook is gradually improving.”
Compared with June, sales volumes were 1.1 per cent higher in July, well ahead of analysts’ forecasts for a 0.7 per cent month-on-month increase.
Sales have now risen in each of the past three months, taking the three-month rate of change to 1.8 per cent – its highest since March 2004.
The ONS said: “Feedback from supermarkets suggested that the sunny weather boosted sales across a range of products including food, alcohol, clothing and outdoor items.”
Economists said Murray’s Wimbledon victory and the birth of Prince George will have contributed to the rise, but the heatwave was the most important factor in last month’s better-than-expected performance as shoppers stocked up on barbecue goods.
Chris Williamson, chief economist at Markit, said: “This pace of growth of retail sales is unlikely to persist, but a further upturn in consumer confidence, an improving labour market, rising house prices and greater confidence that interest rates will stay low for longer should all help ensure that consumer spending plays a role in helping to sustain the economic recovery.”
Bank of England base rates are set to remain at a record low of 0.5 per cent until unemployment, currently 7.8 per cent, falls to 7 per cent – unless there is a risk of inflation running out of control.
The Centre for Economics & Business Research pointed out that wage growth remains below the rate of inflation, squeezing shoppers’ purchasing power, but the Bank’s commitment to low borrowing costs “will encourage consumer spending and provide assurances to households that interest rates are likely to remain low for a few more years”.
The UK economy expanded by 0.6 per cent during the second quarter, and ING Bank economist James Knightley said the ONS sales figures suggest a “decent increase” in GDP in the third quarter.