Shoppers shrug off price rises to drive sales higher

UK retail sales jumped in August as shoppers continued to spend despite strong price rises.

The rise in retail sales was far higher than expected. Picture: Phil Wilkinson

Sales were up 2.4 per cent on this time last year, the 52nd consecutive month of year-on-year increases and exceeding the expected 1.1 per cent rise, as consumers ignored the pound’s post-referendum slump and inflation, the Office for National Statistics (ONS) figures show.

• READ MORE: Retail news

Sales rose 1 per cent month-on-month, exceeding expectations for a much smaller increase of 0.2 per cent.

Royal Bank of Scotland chief economist Stephen Boyle said: “Despite the pressure on spending power with price inflation exceeding wage growth, Britons hit the shops with gusto in August.

“While rising employment means more people are earning and can spend, that can’t account for the growth in retail sales. Either we dipped into our savings or we borrowed more last month.”

Increased spending in non-food shops such as department stores and DIY outlets was behind the dramatic improvement.

Figures for the three months to August as a whole, which smooth out monthly volatility, show a 1.2 per cent rise in sales growth from the measurement of 0.7 per cent in July.

It came as prices increased across all store types, with non-food stores and non-store retailing recording their highest year-on-year price growth since March 1992, at 3.2 per cent and 3.3 per cent respectively.

Sterling jumped sharply on the news, gaining three-quarters of a cent against the dollar and half a cent against the euro.

Boyle added: “The retail sales index measure of inflation can be volatile but the Bank of England’s monetary policy committee will have noticed the rise from 2.7 per cent in July to 3.2 per cent last month. The news will strengthen the hand of those who last week said that the time for a rise in bank rate is coming closer.”

• READ MORE: Bank of England hints at rates rise in ‘coming months’

ONS senior statistician Kate Davies said: “Within this month’s retail sales we are seeing strong price increases across all store types compared with a year ago, reflecting wider inflationary pressures.

“However, we are still seeing underlying growth in sales volumes, and with strong growth in non-essential purchases as consumers continued to buy more from non-food stores.”

• READ MORE: Inflation jumps to 2.9% on rising clothing and fuel prices

Ben Brettell, senior economist at Hargreaves Lansdown, said: “The UK consumer continues to show remarkable resilience, with retail sales in August blowing economists’ forecasts out of the water.

“Spending has defied expectations of a slowdown since the Brexit referendum, and currently seems to be holding up despite weak wage growth and above-target inflation.

“This could bode well for economic growth. The UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into weak retail sales.

“If this fails to materialise the economy could see a stronger second half to the year – though there are also growing concerns over the level of household debt, which is fuelling continued consumption in the absence of rising real wages.”

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