Angela Monaghan and Katie Allen 

UK retail sales rise 1.4% in July as shoppers shrug off Brexit gloom

First official insight into consumer behaviour since referendum shows sales rise much stronger than predicted
  
  

Shoppers watch a street entertainer in Liverpool
Shoppers watch a street entertainer in Liverpool. Britain’s decision to leave the EU has so far had a limited impact on the economy. Photograph: Paul Ellis/AFP/Getty Images

Britain’s shoppers have shrugged off uncertainty caused by the Brexit vote with retail sales rebounding a month after the referendum as warmer weather boosted trade.

The first official insight into consumer behaviour following the 23 June poll indicated that sales rose by 1.4% in July after a 0.9% drop in June, according to the Office for National Statistics (ONS). It was much stronger than the 0.2% increase predicted by economists in a Reuters poll but echoed industry reports of solid growth in consumer spending last month.

It is the latest evidence that Britain’s decision to leave the EU has had a limited impact on the UK economy in the immediate aftermath of the vote and will soothe fears of a recession later this year. But economists were quick to warn that the prospect of job cuts and of rising prices on the high street could see retailers’ fortunes change.

The news of rising retail sales follows jobs figures on Wednesday suggesting that while business sentiment has been hit, employers are not making any sudden decisions to lay off staff. The number of people claiming unemployment benefit dropped by 8,600 in July, surprising economists who were expecting a rise of 9,500.

retail sales volumes

According to the ONS there were signs that the fall in the pound since the referendum, which has made holidaying in the UK cheaper for overseas visitors, had attracted tourists on shopping sprees for luxury goods. Sales of watches and jewellery were up 16.6% on the year.

Joe Grice, the chief economic adviser at the ONS, said: “These are strong numbers showing a pronounced increase in sales compared with last July. Better weather this year could be a major factor with sales of clothing and footwear doing particularly well. There is also anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend. Department stores and specialist retailers like jewellers are among those reporting a good month.”

Retail sales volumes were up 5.9% on the same period a year ago as all sectors recorded growth with the main contribution coming from non-food stores, the ONS said.

Against the backdrop of stiff competition between supermarkets and widespread discounting, average store prices were down 2% on a year ago in July. But the big rise in sales volumes meant there was still a rise in the amount spent – of 3.6% on the year. The amount spent online increased by 16.7% compared with July 2015.

A spokesperson for the business group CBI, which strongly supported a vote to stay in the EU, said the outlook was still uncertain for retailers. “Looking ahead, we can expect weaker spending. The recent fall in the pound will push up the cost of everyday purchases over the coming year, which will eat into households’ spending power,” said Anna Leach, CBI’s head of economic analysis.

Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, echoed that. “July’s retail sales figures show that consumers have been protected from the immediate fallout of the Brexit vote, but with firms intending to stop hiring and inflation set to soar, the high street is set for a tough year,” he said. “The real test for consumer spending lies in 2017 when jobs cuts will kick in and inflation will erode spending power.”

But other commentators said there was little reason to fear a Brexit-related blow to retailers in the near term given spending is being supported by low inflation, low interest rates and low unemployment.

Ian Geddes, the UK head of retail at consultants Deloitte, said: “Retailers will be buoyed by the news of steady confidence and increased spending, and the industry as a whole should feel optimistic about the second half of the year, which will be seen as a period of calm before the Brexit process begins.

“Between now and Christmas, consumers’ spending habits are unlikely to change dramatically, and retailers have an opportunity to make hay while the sun shines.”

 

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