UK retail sales beat expectations in July as online provides a boost

UK retail sales grew more than expected in July, boosted by the online segment, according to data released by the Office for National Statistics.

Retail sales rose 0.7% on the month compared to a 0.5% drop in June and ahead of expectations for a 0.2% increase.

On the year, meanwhile, sales grew 3.5%, up from 1.1% growth in July 2017 and beating expectations for a 3% increase.

In the three months to July, retail sales rose 2.1% from the previous three-month period, marking the strongest performance since February 2015.

Online spending was up 15.3% on the year and now makes up 18.2% of all retail sales, which is a new record high. Meanwhile, online spending at department stores rose 35% on the year, and also reached a record proportion of all sales at 18.2%.

Rhian Murphy, senior statistician at the ONS, said: "Many consumers stayed away from some high street stores in July, but online sales were very strong, supported by several retailers launching promotions. Food sales remained robust as people continued to enjoy the World Cup and the sunshine."

Sterling briefly ticked up on the news, trading 0.2% higher against the dollar at 1.2727.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the pick-up in sales was largely due to temporary online discounting and that July's momentum in overall sales growth was unlikely to be maintained.

"A combination of hotter-than-usual weather and heavy discounting by online retailers boosted retail sales in July, but the outlook for spending in the rest of this year remains lacklustre. The increase in total sales was driven primarily by a huge 4.9% month-to-month increase in the non-store sales. We doubt it is a coincidence that the jump coincided with Amazon’s Prime Day discount period, which ran from July 16 to 17.

"The World Cup, which encouraged people to stay at home, also might have spurred a rotation in spending from stores to online. While non-food store sales increased by 0.7%, they failed to recover from June’s 1.0% drop. The performance among non-food sectors, however, was mixed. Clothing sales rose by 1.5% month-to-month, probably as the hot weather continued to spur demand for summer ranges, but household goods sales fell by 1.5%, perhaps reflecting subdued housing market activity. Meanwhile, food sales rose by a mere 0.1%, repeating June’s slender gain."

Howard Archer, chief economic adviser to the EY Item Club, noted that while retail sales have been healthy recently, consumers still face a pretty challenging environment, with no guarantee that they will spend at a robust rate over the coming months.

"Having seen limited improvement earlier this year following an extended squeeze, consumer purchasing power has recently come under renewed pressure with earnings growth suffering a modest relapse in the second quarter and consumer price inflation edging back. Meanwhile, consumer confidence remains fragile amid economic and Brexit uncertainties. The main support to consumer spending has come from high and rising employment, although the rate of improvement slowed in the three months to June."