UK Retail Sales Beat Expectations During August Sunny Spell

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(Bloomberg) — UK retail sales picked up pace in August, as consumers’ desire to take advantage of sunny weather and summer discounts offset gathering political and fiscal anxieties. 

The volume of goods sold in stores and online increased 1.0% after shoppers splashed out on food and clothing, the Office for National Statistics said on Friday. The reading, which was stronger than the 0.4% increase expected by economists, follows a revised gain of 0.7% in the previous month. 

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“Retail sales rose in August as warmer weather and end-of-season promotions helped to boost sales, most notably for clothing and food shops,” ONS Chief Economist Grant Fitzner said. “Retail sales have also increased across the three-month and annual period, following strong growth from online retailers.”

The figures suggest British consumers were optimistic in August despite a wave of anti-immigrant riots that gripped 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 turning negative in September, which research firm GfK attributed 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 dropped likely reflected in deferring the purchase of big-ticket items,” said Tom Youldon, a partner at McKinsey.

Nonetheless, households have seen wages grow faster than prices in recent months, while inflation for some staple goods like clothing and food cool down. Sunny weather also boosted food sales, which recorded their biggest annual jump since 2021.

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The pound extended gains after the data, rising as much as 0.2% to $1.3313, near the highest level since March 2022. The currency got a boost on Thursday after the Bank of England held interest rates unchanged and warned investors it won’t rush to ease monetary policy, contrasting with a more dovish approach from the Federal Reserve earlier this week.

Sales volumes rose 2.5% in the year to August, the largest annual gain since February 2022. Overall, volumes have almost recovered back to pre-Covid levels seen in February 2020. 

Sunny weather boosted food sales, which recorded the biggest annual jump since 2021, while clothing sales also saw a strong increase thanks to end-of-season discounts. At the same time, non-store retailing, which includes online shopping, fell 1.7% on the month.

What Bloomberg Economics says…

“The sharp pickup in retail sales in August leaves it on course to provide support to headline GDP growth in 3Q. While the cooling of sentiment indicators raises the risk that momentum will ease in the near term, our base case is that positive real wage growth continues to bolster spending in the quarters ahead. The prospect of healthy consumer demand is likely to keep the Bank of England cautious about how quickly it lowers interest rates.”

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—Dan Hanson, chief UK economist. Read the full REACT on the Terminal. 

Temperatures were above average across the country in August, according to the Met Office. Aug. 12 was the hottest day of the year to date, with temperatures of 34.8C (95F) recorded in Cambridge. 

British retailers Ocado and Next lifted their sales outlook for the rest of this year after a stronger-than-expected third quarter. Next said shoppers are already spending on Autumn clothing and buying more full-price items.

Separate figures from the British Retail Consortium showed retail sales recorded their strongest growth since March. Consumers are still indulging in small luxuries, helping fuel a bounce back in card spending in August after two months of declines, according to Barclays.

“If inflation continues to hover close to the 2% mark, consumers may start to experience a modest increase in purchasing power over the crucial golden quarter,” Youldon said. “But with higher energy bills on the horizon from October, many will be mindful of making discretionary purchases and continue to look for opportunities to trade down.”

—With assistance from Aline Oyamada, Mark Evans and Joel Rinneby.

(Updates with analyst comment in third paragraph.)

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