Shoppers in Britain shrugged off June’s shock Brexit vote as retail sales jumped by much more than expected last month, adding to signs there has been little immediate hit for consumers.
Warm weather boosted clothes sales and the pound’s plunge tempted overseas buyers to splash out on luxury items such as watches and jewelry, official data showed on Thursday.
These are the first official figures to shed light on how consumer demand has performed since the unexpected decision by voters to leave the European Union in the June 23 referendum.
Data released earlier this week also showed little immediate impact of the Brexit vote on the labour market but there were signs of inflation pressures building after the plunge in sterling, which could eat into the spending power of households going forward.
Sentiment surveys have shown levels of concern, but actual retail sales volumes surged 1.4 per cent in July compared with June, the Office for National Statistics said, topping all forecasts in a Reuters poll that pointed to a much smaller rise of 0.2 per cent.
The pound rose half a cent against the dollar and British gilt (bond) futures pared gains after the data release.
“This positive surprise is encouraging for (third quarter) growth, but with consumer confidence having plunged in the wake of Brexit and business surveys suggesting growing caution, we doubt that it is sustainable,” said James Knightley, economist at ING.
“Inflation is starting to rise and will continue to do so due to the steep fall in sterling, meaning that real household income growth will weaken. This is likely to limit retail sales growth in coming quarters.”
The ONS retail sales figures are volatile and Bank of England policymakers will want to see more than one month’s data before drawing firm conclusions about the health of consumer spending – a key pillar of British economic recently.
“Better weather this year could be a major factor with sales of clothing and footwear doing particularly well,” said Joe Grice, chief economic adviser at the ONS.
“There is also anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend.”
Sales of watches and jewelry were up 16.6 per cent in July compared with the same month last year – the biggest jump in nearly two years.
Major retailers including Tesco, Next and John Lewis say they have not been affected so far by the referendum result, while the British Retail Consortium also said spending in shops bounced in July.
But the long-running GfK survey – the main measure of consumer morale and an indicator of future household spending over the years – suffered its sharpest drop since 1990 last month.
Compared with a year earlier, July sales growth jumped to 5.9 per cent, the biggest rise since September of last year and far stronger than the 4.2 per cent forecast, Thursday’s data showed.
The BoE more than halved its forecasts for household spending over the next two years in light of the vote to leave the EU. It now expects growth in spending of 1.0 per cent and 0.75 per cent in 2017 and 2018 respectively as lower growth in wages and higher inflation eat into spending power.