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ONS reports a surprise rise in UK retail sales; adds to recovery hopes

British retail sales grew unexpectedly in July and were stronger than first thought in June, boosting chances that consumer spending will help lift the economy out of recession.

The economy has been shrinking since late 2011 according to official data, and the Bank of England launched a new round of monetary stimulus early last month, while the government is trying to get credit flowing to businesses and households.

The neighbouring euro zone debt crisis and the government's austerity measures have been weighing on the UK economy, and many economists think it will contract in the full year.

Retail sales volumes rose 0.3 percent on the month to give an annual increase of 2.8 percent - compared with economists' forecasts for a monthly fall of 0.1 percent, the Office for National Statistics said on Thursday.

British government bonds fell and the pound hit a session high against the dollar and the euro after the release.

"If you look at the (retail) trend, it's been sharply higher for the last year and that's no accident," said Alan Clarke, economist at Scotiabank. "Inflation has slumped, there's 335,000 more people in work and they're spending it."

The ONS revised sales growth in June to 0.8 percent from a previously reported rise of 0.1 percent, reducing the overall decline in retail sales in the second quarter to just 0.3 percent versus the previous three months.


Together with significant upward revisions to second-quarter construction and manufacturing figures, the latest data increased the chance that the originally reported 0.7 percent drop in GDP will be revised up.

"Retail sales do correlate with one of the big services components, so there's a good chance that all the doom and gloom for Q2 was overdone," Clarke said.

Adding to evidence that the underlying economy may be stronger than official statistics show, British car output jumped by more than 22 percent on the year in July, said the Society of Motor Manufacturers and Car Traders.

Most economists expect the economy to grow in the third quarter, after an extra public holiday to mark Queen Elizabeth's 60 years on the throne lowered output in the second quarter.

Retailers have also been hoping that visitors of the July 27-Aug. 12 London Olympics and a morale boost from the success of the country's athletes will have lifted sales, though there has been no broad-based evidence of that yet.

The ONS said that retailers reported no impact from the first two days of the Games covered in the July release.

However, Britain's biggest department store group John Lewis reported stellar sales growth of 22.4 percent year-on-year in the week to Aug. 4.

Many Britons have been reluctant to spend as higher taxes and rising prices have eaten up meagre wage increases.

On Tuesday the ONS reported an unexpected rise in inflation last month.

Still, while economy has officially been in recession since late 2011, employment has risen by more than 400,000 over the same time.

Source : Olesya Dmitracova & Sven Egenter - Reuters

16 August 2012
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