July 20, 2017 / 11:20 AM / a month ago

Sunshine lifts UK retail sales, points to brighter growth

A woman shops in a supermarket in London, Britain April 11, 2017.Neil Hall/Files

LONDON (Reuters) - Sunny weather brought British shoppers out and led to stronger retail sales than expected in June, shaking off a gloomy start to the year and suggesting the broader economy may be regaining speed after an early 2017 lull.

More recent data have been mixed, as consumers feel squeezed by higher inflation largely driven by sterling's fall after last year's Brexit vote, while the Bank of England has been see-sawing over whether interest rates need to rise.

Retail sales volumes rose by 0.6 percent month-on-month in June after falling 1.1 percent in May, the Office for National Statistics said on Thursday, beating economists' forecasts in a Reuters poll for a 0.4 percent rise.

Sterling gained slightly against the dollar on the data, which economists said showed at least some temporary momentum in the British economy.

"Households are not tightening their belts in response to higher inflation or Brexit uncertainty," said Paul Hollingsworth from consultancy Capital Economics.

Looking at the three months to June, which smoothes out monthly volatility in the data, sales rose by 1.5 percent, cancelling out a 1.4 percent drop in the first three months of 2017, the weakest calendar quarter since 2010.

"A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales this month," ONS statistician Kate Davies said.

Compared with a year earlier, retail sales were 2.9 percent higher in volume terms in June, also beating forecasts in a Reuters poll.

The ONS said Thursday's data was likely to add just under 0.1 percentage points to the growth rate of the economy in the second quarter, which was just 0.2 percent in the first three months of 2017.

Weaker consumer demand is a key reason why many economists predict growth will slow this year, though the Bank of England expects stronger exports and business investment to compensate.

Separate surveys on Thursday showed Brexit uncertainty hitting construction investment, while barely one in ten firms had set in motion their plans to deal with leaving.

Despite a surprise fall in inflation last month, prices are still rising at close to their fastest rate in four years, and weak wage growth means many households feel under financial pressure as Britain starts talks to leave the European Union.

"Life will remain highly challenging for consumers over the second half of 2017," said economist Howard Archer of advisers EY Item Club, adding that prices were still rising faster than wages.

Last month also saw Prime Minister Theresa May unexpectedly fail to win a parliamentary majority in the snap election she called for June 8, which hurt consumer sentiment according to some surveys.

A further pass through of the effect of last year's fall in the pound may still be to come, too.

Sportswear retailer Sports Direct reported on Thursday that full-year profits fell by more than a quarter, after it failed to hedge sufficiently against last year's fall in sterling and did not pass on to shoppers the full increase in its import costs.

Editing by Hugh Lawson

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