UK Economy

Retail sales up at fastest rate in three years

LONDON (Reuters) - Retail sales grew at their fastest pace in three years in July, and retailers were their most upbeat in six years about the prospects for August, a survey by the Confederation of British Industry showed on Tuesday.

The CBI’s monthly distributive trades survey’s reported sales balance jumped to +33 in July from -5 in June, beating analysts’ forecast for a reading of zero, as discounting, the World Cup soccer tournament and warm weather boosted sales.

It was also three times better than retailers themselves had expected. And stores expected sales growth to strengthen further next month, with an expected sales balance for August of +45 -- the highest since June 2004.

The pound rose almost a third of a cent against the dollar after the data, as investors reckoned the economy would continue to grow strongly in the third quarter after recording the fastest growth in 4 years between April and June.

“It’s worth being cautious about reading too much into these figures. Still, with GDP, official June retail sales and some of the euro surveys strong the economic mood has been more positive recently,” said George Buckley, economist at Deutsche Bank.

However, the figures had been flattered by a reweighting of the survey to bring it into line with UK and EU statistical standards.

Under the old methodology, the July reported sales balance would have been +21 and August’s expectations balance would have been +33 under the old system.

And analysts warned that a clampdown on government spending and a rise in value added tax at the start of next year could heavily dent consumer demand going forward.

“Sales benefited in July from the potent combination of very good weather, decent discounting on the high street and a final boost from the football World Cup,” said Howard Archer, economist at IHS Global Insight.

“Nevertheless, the suspicion remains that further out consumers are likely to find life hard and will be constrained in their spending. The substantial fiscal squeeze will increasingly hit public sector jobs and consumers’ pockets, while households already face high unemployment, muted earnings growth, elevated debt levels and high fuel prices.”

The survey was conducted between June 23 and July 14, with responses from 71 retailers.

Reporting by Christina Fincher; Editing by Ron Askew