Hot weather boosts UK retail sales

UK retail sales rose by more than expected in June, rebounding from May’s decline, according to the Office for National Statistics (ONS). The quantity of goods bought rose by 0.6% in June from May, which was stronger growth than economists had been expecting.
The rise was driven by strong sales of household goods, clothing and shoes. That compensated for falling sales at supermarkets and other sellers of food and drinks. “A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales this month,” ONS statistician Kate Davies said.

Retail sales rose by 1.5% in the three months to the end of June, which wipes out the 1.4% slide in sales over the first three months of the year. Economists prefer to look at figures over three months, which smooth out volatile moves from month to month. “We shouldn’t get too carried away by these figures. After all, the retail sales figures are very volatile on a month-by-month basis. And the heatwave in June provided a boost to clothing sales that may not be sustained,” said Paul Hollingsworth, UK economist at Capital Economics.

Other economists argue the figures should have been even stronger. “Last month was the fifth warmest June since 1910, and food and clothing sales usually surge when the temperature is unusually high in the summer,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “The increase in retail sales in June was relatively modest, given the temporary support to demand from the unusually warm weather.” Economists are keeping a close eye on spending by UK shoppers as it has been supporting the overall economy. But with inflation now running ahead of wage growth, there have been concerns of a slowdown in spending. “The outlook of falling real wages and tightening credit conditions suggest that retail sales will struggle to retain Q2′s vigour in the second half of this year,” Mr Tombs said.

Next week, figures will be released on second quarter growth in the UK. Growth could “perk-up” from the first quarter figure of 0.2% according to Chris Williamson from IHS Markit. However, Mr Tombs from Capital Economics doubts there will be much improvement, given other weak economic data.