UK retail sales rebounded in August as consumers’ desire to take advantage of sunny weather and summer discounts offset lingering political and financial concerns.
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(Bloomberg) — U.K. retail sales rose in August as consumers’ desire to take advantage of sunny weather and summer discounts offset lingering political and financial worries.
The volume of goods sold in stores and online rose 1.0% as shoppers splashed out on food and clothing, the Office for National Statistics said on Friday. The reading, which was stronger than the 0.4% rise economists had forecast, followed a revised 0.7% increase in the previous month.
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“Retail sales rose in August as better weather and end-of-season sales helped boost sales, particularly in clothing and food stores,” said Grant Fitzner, chief economist at the ONS. “Retail sales also increased over the three-month period and the annual period, following strong growth from online retailers.”
The figures suggest British consumers were upbeat in August despite anti-immigration riots that swept parts of England earlier in the month and Prime Minister Keir Starmer’s warnings of tough fiscal decisions ahead. Separate data released earlier on Friday showed consumer confidence turned negative in September, which research firm GfK put down to concerns about the Labour government’s tax and spending plans.
“While consumers are showing a willingness to spend on essential and semi-discretionary categories, consumer confidence has declined, likely reflected in a postponement of big-ticket purchases,” said Tom Weldon, a partner at McKinsey.
However, wages have been growing faster than prices in recent months, while inflation in some basic goods such as clothing and food has slowed. Sunny weather also boosted food sales, which posted their biggest annual jump since 2021.
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Sterling extended gains after the data, rising about 0.2% to $1.3313, near its highest since March 2022. The currency received a boost on Thursday after the Bank of England kept interest rates unchanged and warned investors it would not rush to ease monetary policy, in contrast to a more dovish approach from the Federal Reserve earlier this week.
Sales volumes rose 2.5% year-on-year through August, the largest annual increase since February 2022. Overall, volumes have almost recovered to pre-Covid-19 levels seen in February 2020.
Sunny weather boosted food sales, which posted their biggest annual jump since 2021, while clothing sales also saw a strong increase thanks to end-of-season discounts. Meanwhile, non-store retail sales, which include online shopping, fell 1.7% month-on-month.
What does the Bloomberg Economics report say?
“The sharp rise in retail sales in August leaves them on track to provide support to headline GDP growth in the third quarter. While slowing sentiment indicators increase the risk of a downturn in the near term, our base case is that positive real wage growth continues to support spending in the coming quarters. The prospect of healthy consumer demand is likely to keep the Bank of England cautious about how quickly it can cut interest rates.”
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—Dan Hanson, UK Chief Economist. Read the full REACT report on the station.
Temperatures were above average across the country in August, according to the Met Office. The hottest day of the year so far was August 12, with temperatures of 34.8°C (95°F) recorded in Cambridge.
British retailers Ocado and Next have raised their sales forecasts for the rest of this year after stronger-than-expected third-quarter results. Next said shoppers were already spending on autumn clothes and buying more full-price items.
Separate figures from the British Retail Consortium showed retail sales grew at their strongest rate since March. Consumers are still enjoying simple luxuries, which helped fuel a rebound in credit card spending in August after two months of decline, according to Barclays.
“If inflation continues to hover around the 2% mark, consumers may start to experience a modest boost in purchasing power during the crucial golden quarter. But with higher energy bills looming from October, many will be keen to make discretionary purchases and continue to look for opportunities to trade lower,” said Yoldon.
—With assistance from Allen Oyamada, Mark Evans, and Joel Renneby.
(Updates with analyst comment in third paragraph.)
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