September 19, 2013 / 8:33 AM / 7 years ago

Retail sales growth slows in August after strong July

LONDON (Reuters) - Retail sales were surprisingly weak in August as consumers reined in spending, particularly on food, after a July splurge.

A shopper waits outside a store in Oxford Street in central London August 15, 2013. REUTERS/Toby Melville

The release - the first UK economic indicator in a while to come in below forecasts - pushed an otherwise strong pound to a session low and lifted British government bonds.

But analysts were reluctant to read too much into a volatile data series and noted the underlying trend remained positive. Separate figures showing a 16 percent rise in car manufacturing in August also provided a counterpoint.

Retail sales volumes fell 0.9 percent on the month, wrongfooting economists who had expected a rise of 0.4 percent. The annual rate of growth slowed to 2.1 percent from July’s 2-1/2 year high of 3.0 percent.

“It’s a disappointing outcome that has taken the wind out of the sails of sterling for now, but the underlying story still looks good,” said James Knightley, UK economist at ING.

The biggest drag came from food store sales which slumped 2.7 percent in the month of August, fully reversing the previous month’s gain.

July’s’s figure was boosted by unusually hot weather which encouraged spending on barbecue food and outdoor items. A Royal baby and string of British sporting successes provided an additional reason to splash out.

David Tinsley, UK economist at BNP Paribas, said Thursday’s sales release was a useful reminder that British economic data would not soar inexorably upwards.

“It’s not going to be a one-way progression,” he said. “But the picture of underlying improvement remains intact.”

On a three-month on three-month measure, a more reliable indicator of trend, sales volumes rose a healthy 1.7 percent. The retail sector accounts for just under 6 percent of the British economy.

Rising house prices, record low mortgage interest rates and signs of economic recovery have given consumer spending a boost in recent months, prompting the Bank of England to revise up its prediction for third-quarter growth this week to 0.7 percent from 0.5 percent forecast just a month ago.

New BoE Governor Mark Carney has sought to reassure households, as well as businesses, that interest rates will not be rising any time soon, potentially encouraging more spending.

But with inflation continuing to outstrip wage growth, economists question whether the improvement in the consumer mood seen since the start of the year will be sustainable.

Some of Britain’s biggest retailers have sounded a cautious note on the prospects for recovery.

Morrisons, Britain’s fourth-biggest grocer, said last week that higher levels of spending in the London area were not indicative of the rest of the country.

Next, the country’s No. 2 clothing retailer, sounded similarly downbeat, saying a full-blown recovery would require growth in real earnings, not just borrowing.

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