Retail sales jump into the UK's trolley of good results

The sizzling summer has boosted retail sales cementing Britain's recovery, but we should employ caution.

by Gabriella Griffith
Last Updated: 19 Aug 2013

Retail sales grew at their fastest pace for seven years in July, according to the British Retail Consortium, as the hot weather sent shoppers panting into stores in pursuit of BBQs, thongs and sunscreen. Last month was the third successive month of retail growth, with like-for-like sales in July up 2.2% compared with last year.

‘July was a golden month for retail sales and marks a return to form for British retailers,’ said David McCorquodale, head of retail at KPMG.

‘Hopefully this uptick in sales is another indication that the UK economy has turned the corner towards growth.’

Food and drinks received a huge boost, clothing sales – especially swimwear and other summer gear – went through the roof, and health and beauty, DIY and gardening products all performed well.

Analysts are putting the rush on the shops down to a wave of good feeling among the UK’s shoppers, thanks to consecutive sporting triumphs, the heatwave and some baby called George.

Books, on the other hand, lagged behind, with lower sales than last year – poor performance has been put down to a distinct lack of S&M flavoured blockbuster novels (how could we possibly expect to recreate the 50 Shades effect?)

‘Murray mania, summer sun and the arrival of the royal baby gave consumers that much-needed feel good factor, encouraging them to leave caution behind and help retailers put in a champion performance,’ added McCorquodale.

The buoyant growth news from the retail sector joins a catalogue of other positive results from the services, manufacturing and construction sectors – in the form of purchasing managers index (PMI) rises. Yesterday it was revealed the services PMI rose to 60.2, it’s highest level for six years.

The pound also rose against both the dollar (up to $1.5338 from $1.5287) and the euro (up to €1.1568 from €1.5287) in light of the positive results.

A reason to celebrate? Not yet: several economists have warned it still isn't time to rest on our economic deck chairs and bask in recovery sunshine: the growth we’re experiencing now might not be sustainable.

‘In the space of just a few months we’ve gone from asking the question "Will growth ever return?" to "Are such strong rates of growth really sustainable?’" said George Buckley, UK economist at Deutsche Bank.

‘With growth accelerating, beware the ketchup in the bottle effect,’ tweeted Andrew Lilico, former chief economist at think tank Policy Exchange, referring to the potential tsunami of inflation we might experience now the Bank of England has ‘shaken the bottle’ of quantitative easing so hard.

All eyes will be on Mark Carney tomorrow when he unveils forward guidance in the form of his Inflation Report. Carney is notoriously fond of forward guidance – it’s where a central bank indicates what is likely to happen to monetary policy much further ahead than is usually revealed. It’s hoped it will boost growth by providing more confidence that interest rates will remain low.

He is expected to keep rates at their 0.5% level despite calls to hike it up in light of the recent growth. He will try to reassure consumers, businesses and money markets this won’t change until recovery is absolutely certain.

What we can bank on (arf, arf), is whatever Carney divulges tomorrow – it’s bound to set economic chins wagging as the debate on what the BoE should do, heats up.

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