U.K. Retail Sales Rebound in July on Warm Weather, Discounts

(Bloomberg) -- U.K. retail sales bounced back strongly in July as warmer weather and extended discounts at stores encouraged shoppers to open their wallets.

Sales gained 0.7 percent from June, compared with a median estimate of a 0.2 percent gain in a Bloomberg survey. The increase was led by online sales, food and clothing, according to data from the Office for National Statistics in London. Excluding auto fuel, sales jumped 0.9 percent.

Britons enjoyed a heat wave this summer that lifted spending, while the soccer World Cup helped boost sales of food and drink. Still, the warm weather may have kept people away from some high-street stores as online spending climbed to a record proportion of total. The pound climbed after the data and was 0.2 percent higher at $1.2730 as of 9:34 a.m. in London.

The Bank of England raised interest rates this month to the highest level in almost a decade on concern that domestic price pressures are building. A report yesterday showed the inflation rate climbed to 2.5 percent, above the central bank's 2 percent target.

Still, the depreciation of the pound triggered by Brexit and meager wage growth so far have made it harder for consumers. The country is only just emerging from a year in which price gains outstripped wage growth.

Retail Pain

That's been brutal for U.K. retailers. Department store House of Fraser needed a rescue package this month to avoid insolvency. Home improvement chain Homebase said it will close more than 40 stores in Britain and Ireland. In the past year, the sector has seen BHS, Maplin Electronics and the U.K. arm of Toys “R” Us Inc fall victim to the squeeze.

Traditional bricks-and-mortar stores are struggling in the face of competition from the internet. Spending online jumped to a record 18.2 percent of all retailing in July, the same level as in department stores, while summer discounts lasted longer than usual this year both online and in stores, the ONS said.

Over three months, sales gained 2.1 percent from the previous period, the ONS said. From a year ago, retail sales increased 3.5 percent in July. Excluding fuel, annual growth was 3.7 percent.

--With assistance from Simbarashe Gumbo and Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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