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UPDATE 1-UK retail sales rebound, set to counter growth slowdown
November 20, 2014 / 12:41 PM / 3 years ago

UPDATE 1-UK retail sales rebound, set to counter growth slowdown

* Retail sales jump 0.8 percent in October, beat forecasts

* Manufacturers expect impact of weaker foreign demand

* Auto production down on lower exports

* GRAPHIC: UK retail sales r.reuters.com/raz24v (Combines stories, adds comment from economists, background)

By William Schomberg and Kate Holton

LONDON, Nov 20 (Reuters) - British retail sales jumped in October, suggesting that shoppers will take the edge off an end-of-year economic slowdown as Europe’s weak growth takes its toll on Britain’s factories.

Sales volumes rose by a much stronger-than-expected 0.8 percent on the month, helped by purchases of furniture after the housing market surged earlier this year and by falling prices, data from the Office for National Statistics showed on Thursday.

Consumer spending has driven Britain’s strong economic recovery which began in mid-2013 and is likely to remain its main driver as the global economic outlook worsens.

A survey showed British manufacturers expect output in the next three months to be its lowest in over a year, hurt by the sluggish euro zone and a slowdown in China.

A separate report showed British car production fell by nearly 7 percent in October due to weak exports.

Spending by British consumers is growing less strongly than earlier this year, but there are signs it will hold up. Wages are edging up and inflation looks set to dip below 1 percent.

Bank of England policymakers have questioned how long private demand can continue to offset weak exports and the effects of public sector spending cuts, according to minutes of their November meeting which were published on Wednesday.

British Prime Minister David Cameron is hoping that in the short term, the combination of wage growth and low inflation will help earn him a second term at national elections in May.

Thursday’s data showed prices among retailers fell by 1.5 percent in October compared with a year earlier, their biggest fall since 2002, pushed down by lower petrol prices.

Strong furniture sales could reflect what the ONS believes to be a six-month lag between mortgage approvals and house purchases and consumers buying household goods.

Liz Martins, an HSBC economist, said the recent slowdown in the housing market could weigh on retail sales in coming months.

“However, the broader picture is that, amid concerns about a potential slowdown in the UK economy, this number marks a strong start to the final quarter of the year,” she said.

Rob Wood, an economist at Berenberg bank, expects quarterly British economic growth to slow to 0.6 percent in the fourth quarter, down from a peak of 0.9 percent in the second, but picking up speed again in 2015. (Additional reporting by Andy Bruce and Costas Pitas; Writing by William Schomberg; Editing by Ruth Pitchford)

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