July 22, 2010 / 8:33 AM / 10 years ago

Retail sales get World Cup boost in June

LONDON (Reuters) - Retail sales rose faster than expected in June, boosted by good weather, early summer sales and a dash for the latest electronic equipment ahead of the World Cup, bolstering hopes for solid GDP data on Friday.

Shoppers carry Marks and Spencer bags on Oxford Street in London May 25, 2010. REUTERS/Luke MacGregor

The Office for National Statistics said sales volumes rose 0.7 percent on the month to stand 1.3 percent higher than the same month last year. Excluding fuel, the monthly rise was 1 percent — the biggest jump in almost a year apart from February’s snow-related rebound.

Sterling and British share prices rallied on the data as investors speculated that second-quarter GDP data due on Friday could also surprise on the upside.

But analysts warned that headwinds remained from public spending cuts, and that consumer spending could weaken.

“This report supports the case for a firm second-quarter GDP number tomorrow, with upside risk for our 0.5 percent quarter-on-quarter forecast,” said James Knightley, UK economist at Dutch bank ING.

“Nonetheless with consumer confidence having weakened so much, as significant fiscal austerity is on its way, this is likely to mark the high point for growth for several quarters.”

Household goods stores led the rise in June, with sales jumping by 1.6 percent on the month and 6.1 percent on the year, the biggest annual increase since May 2008. Sales of electrical appliances were up almost 20 percent on the year.

Overall retail sales had their best three months since April 2008, rising by 1.7 percent versus the first quarter of 2010.

DISCOUNTING HELPS

The Bank of England is trying to support the recovery at the same time as pulling inflation back to target, and may take some comfort from signs that retailers are holding back price rises to lure in shoppers.

The retail sales deflator, a measure of price inflation, eased to 1.3 percent on the year, barely half May’s level and the lowest since November.

In an interview in Thursday’s Independent newspaper, BoE chief economist Spencer Dale said the near-term growth outlook had deteriorated but inflation would remain above the BoE’s 2 percent target until the end of 2011, partly because of a planned rise in value-added tax next January.

Minutes of the central bank’s July 7-8 Monetary Policy Committee meeting showed rate-setters discussed easing policy for the first time since February, reflecting growing concerns about Britain’s recovery prospects.

Money markets show most investors do not expect British interest rates to rise until well into next year, and a growing contingent are betting on rates remaining at historically low levels for years.

“The question is not so much how sales fared in June but the outlook over the second half of the year, and there are big question marks over the robustness of household spending,” said Philip Shaw, UK economist at Investec.

Editing by Hugh Lawson

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