UK retail sales unexpectedly increase

UK retail sales unexpectedly jumped last month, with increases across all sectors except food and clothing.

Retail sales in August rose 0.3% month on month, when they had been forecast to fall by the same amount, while the Office for National Statistics revised July's sales up to 0.9% from 0.7%. This left three-month-on-three-month growth at 2%.

August sales therefore were up 3.3% compared to the same month last year, well ahead of the 2.2% gain expected, while July's gain was revised up to 3.8% from 3.5%.

Online sales grew to represent 18.2% of all retail sales in August.

Excluding fuel sales, which fell, retail sales climbed 0.3% on on the month and 3.5% on the year, versus expectations of a 0.2% fall and 2.4% rise respectively.

“Retail sales remained strong in the three months to August, with continued growth across all sectors," said ONS head of retail sales, Rhian Murphy. "Food and household goods stores particularly benefitted from the warm weather when compared with last summer."

“The figures for the month of August were a little more mixed, with food sales falling after strong sales earlier in the summer and clothing sales declining following a strong July, as suggested by clothing retailers."

Household goods enjoyed their largest monthly jump in sales since May 2016.

The quantity of food sales fell 0.6% month-on-month while clothing sales volumes dropped 1.9%, offset by strong growth in other non-food stores at 2.8% and household goods stores at 4.5%.

Despite the travails of House of Fraser and Debenhams, the ONS reported strong growth in department stores, reaching a record proportion of total sales at 18.4%.

Economist Andrew Wishart at Capital Economics said: "Despite inflation ticking up in August, prolonging the squeeze on real incomes, retail sales volumes increased."

He said the strength of annual sales growth was consistent with a strengthening in overall consumer spending growth from the 1.1% yearly rate recorded in the second quarter.

"Of course, retail sales only account for about a third of total household spending, so the strength of spending on the high street could be offset by households reducing their outlay elsewhere. But the Bank of England agents scores suggest that consumer services spending strengthened in August.

"Overall, then, some strengthening in consumer spending growth in Q3 looks likely. And while inflation unexpectedly ticked up in August, we still think that it will ease to 2% by this time next year, paving the way for a sustained recovery in consumer spending growth."

Howard Archer, chief economic advisor to the EY ITEM Club, said the boost to spending from good weather was rather "questionable" as historical association between unseasonably good weather and sales is actually very weak.

“Looking ahead, a more realistic threat to sales growth than a return to more traditional British weather is the prospect of a period of sticky inflation ahead, driven by dearer oil, hikes in energy bills and the weaker pound. Indeed, mimicking the trend in the overall consumer price index, annual growth in shop prices picked up in August to 2.2% from 2.1% in the previous month, the first rise since April.

"So the end of summer may mark the start of a more restrained performance from retailers, with growth likely to run at a more sluggish pace over the remainder of the year.”