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Retail sales volumes rose 0.3 per cent between June and July in the UK, confounding expectations of a 0.1 per cent fall.

Fabrizio Bensch/REUTERS

British retail sales rose unexpectedly last month and were also much stronger than thought in the previous month, prompting some economists to conclude that the UK's double-dip recession has been overstated.

Retail sales volumes rose 0.3 per cent between June and July, confounding expectations of a 0.1 per cent fall. In addition, the Office for National Statistics revised the June data from a 0.1 per cent to a 0.8 per cent monthly rise.

The data follow news of a very strong rise in employment in the three months to the end of June. They also add to the mixed signals about the health of the economy, which contracted by 0.7 per cent in the second quarter, according to the ONS.

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"While the retail sales number is not included in the output measure of gross domestic product, the better than expected sales growth in June adds to the view that the GDP numbers overstate the recent weakness of the economy," said Chris Williamson, an economist at Markit, a data provider.

"With the Queen's jubilee thought to have hit GDP by 0.5 per cent, the UK's underlying health is more like one of flatlining, and perhaps even very modest growth, rather than recession."

Vicky Redwood, economist at Capital Economics, said the revisions added to evidence suggesting there was a [Queen'] jubilee boost. "The fall in sales in the second quarter overall was revised from 0.7 per cent to 0.3 per cent, adding to other evidence suggesting that the initial estimate of GDP will be revised up in next week's second estimate," Ms. Redwood said.

The retail sales increase over the past three months has been broad, with all main sectors, with the exception of gasoline stations, recording rising volumes. Sales rose 0.5 per cent between the first and second quarter in supermarkets and other food shops, 1.8 per cent in clothing and shoe shops, and 3.1 per cent in "non-specialized" shops such as department stores.

Shoppers may be spending more because inflation is falling back, easing the squeeze on their wages. In July, the annual shop price deflator, a measure of inflation in shops, fell to just 0.2 per cent, the lowest since October, 2009.

"The decline in inflation this year from the highs reached in 2011 is providing a boost to household finances, with the result that this year was unlikely to be as challenging for households as last year proved to be," said Kevin Daly, an economist at Goldman Sachs. He noted that annual retail sales growth in volume terms had picked up from a low of minus 1.6 per cent in August of last year, when inflation was close to its peak, to plus 3.3 per cent in July.

Alan Clarke, an economist at Scotia Bank, said the rise in employment had probably helped too. "There are 335,000 more people earning money since last January - and with lower inflation they get to keep more of their income to buy discretionary items."

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Strong growth was recorded in non-store sales, a category that includes internet purchases. Richard Lowe, head of retail and wholesale at Barclays, said the fact that consumers were still spending would be of some comfort to retailers. "As the sector struggles to find sustained growth at home, more and more are looking to expand overseas," Mr. Lowe said. " Even smaller retailers are starting to spread their wings internationally with the help of the internet".

The ONS said the London 2012 Olympic Games, which started in the last two days of the month, had no effect on the data.

Copyright The Financial Times Ltd. All rights reserved.

2012-08-16 06:25:27

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