UK retail sales growth falls to eight month low

Thursday 21 August 2014 13.05
UK monthly retail sales grow by just 0.1% in July
UK monthly retail sales grow by just 0.1% in July

UK retail sales grew in July at the slowest annual rate since November last year, while the government failed to make major inroads into a looming overshoot in public borrowing.

The figures add to signs that Britain's consumer-led recovery might be starting to slow.

Monthly growth in retail sales volumes unexpectedly fell to just 0.1% in July, down from 0.2% in June and bucking forecasts for a rise to 0.4%. 

Annual growth in the volume of goods sold dropped to 2.6%, the weakest since November last year and again below forecast, despite prices falling at their fastest rate in almost five years, giving consumers more for their money. 

UK government finances data showed an unexpected deficit in July for the second year running, continuing the weak start to this tax year, which is partly due to one-off effects but leaves the government reliant on a big upturn in income tax receipts to meet its fiscal goals. 

Bank of England policymakers were split over raising interest rates for the first time in three years earlier this month, according to minutes published yesterday. 

The ONS said the biggest downward pressure on retail sales came from non-store retailing and petrol stations, and some economists said the retail data looked healthier once fuel sales and monthly volatility were stripped out. 

Britain's consumers have been the main driver of the country's economic recovery which began last year, helped in part by low inflation that has eased the pressure on their spending power. 

Wage growth, however, remains very weak and increased spending has been funded in part by households cutting back on how much they save. 

Prices in UK stores fell 0.9% on the year after being flat in June, the biggest decline since August 2009, the ONS said. 

However household budgets are squeezed by higher prices for other goods and services, with the broader consumer price inflation measure rising by 1.6% in July. 

The ONS also said today that public sector finances, excluding financial sector interventions, showed a deficit of £239m compared with a deficit of £1.047 billion in July 2013. 

Economists polled by Reuters had expected a small surplus of £50m, as July normally sees big inflows of tax revenue. 

The government aims to reduce public sector net borrowing, excluding financial sector interventions and some other factors, by 9.7% to £95.6 billion in the year to the end of March.

But borrowing on this measure for the tax year to date is 5.1% higher than the same time in 2013, largely reflecting a poor first three months of the fiscal year. For July alone, borrowing on this measure was down to £0.8 billion from £1.6 billion in July 2013. 

A government spokesman said the greater year-to-date borrowing was due to a different pattern of receipts compared to 2013, when extra revenue came early in the year from a deal to recoup tax evaded by British nationals with bank accounts in Switzerland. 

The government said it was banking on a big rise in income tax receipts in January to help meet its goal to halve British borrowing as a percentage of gross domestic product over the course of a five-year parliament. 

The UK government is aiming to get the deficit down to 5.5% of gross domestic product in the 2014/15 fiscal year, down from 6.5% in 2013/14 and around 11% when it came to power in May 2010.