LONDON (Reuters) - British retail sales slowed as expected in July after a strong second quarter, as shoppers cut back on purchases of most things other than food, adding to worries about a fall in consumer demand.
Retail sales volumes grew by 0.3 percent month-on-month in July, a shade above economists' forecasts in a Reuters poll for a 0.2 percent rise, the Office for National Statistics said, and the same as a downwardly revised reading for June.
Looking at the three months to July as a whole, which smooths out monthly volatility in the data, sales growth dropped to 0.6 percent from an unchanged 1.5 percent for the second quarter, the strongest calendar quarter since Q3 2016.
Rising inflation has eaten into British consumers' disposable income this year, causing the weakest first quarter for retail sales since 2010, as the fall in the pound after last year's Brexit vote pushed up the cost of the imports.
Compared with a year earlier, growth in sales volumes was the slowest since November 2013 at 1.8 percent.
Official data on Wednesday showed that wages in the second quarter were 0.5 percent lower in real terms than in 2016, one of the biggest falls in the past three years.
There are some signs, however, that the rapid rise in inflation - which has quadrupled over the past year - is starting to level off.
The Bank of England expects inflation to peak at around 3 percent in October, compared with 2.6 percent now.
The volume of purchases of almost all categories of goods other than food dropped in July, the ONS said.
"The underlying trend at the beginning of 2017 showed a relatively subdued picture for retail sales," said ONS statistician Ole Black. "Whilst the overall growth (in July) is the same as in June, trends in growth in different sectors are proving quite volatile."
Clothing sales fell by the most since December 2016 last month, after hotter than usual weather had boosted demand in June.
Weaker consumer demand is a key reason why many economists predict growth will slow this year, though the BoE expects stronger exports and business investment to largely compensate.
Figures from consumer research company Nielsen earlier on Thursday showed the highest proportion of Britons in two years tried to cut spending in the second quarter of 2017.
The chief executive of one of Britain's biggest car dealership chains Lookers told Reuters on Wednesday he now expects the British new car market to shrink by 3 percent this year, downgrading his outlook due to Brexit and political uncertainty.
Furniture seller DFS said last week that it expected profits would be at the lower end of forecasts due to weak consumer demand.
The gauge of inflation used in the retail sales data, the retail price deflator, held steady at 2.7 percent in July, its lowest since January.
Sales in cash terms were 4.1 percent higher than July 2016, also the smallest increase since January.
Reporting by David Milliken and Paul Sandle