Bloomberg News

U.K. Retail Sales Unexpectedly Increase Most in Five Months

October 20, 2011

(Updates with comment from economist in fourth paragraph.)

Oct. 20 (Bloomberg) -- U.K. retail sales unexpectedly rose in September by the most in five months, led by spending on electrical goods such as laptop computers.

Sales including fuel climbed 0.6 percent from August, when they fell a revised 0.4 percent, the Office for National Statistics said today in London. That’s the biggest gain since April and compares with the median forecast of 23 economists in a Bloomberg News survey for no change. In the third quarter, sales fell 0.2 percent compared with the previous three months.

The Bank of England, which expanded stimulus this month to aid the recovery, said yesterday that household spending has been “weak for some time” as tensions in global markets affect consumer confidence. Pressure on households may continue after gas and electricity costs helped to push inflation to 5.2 percent in September, the highest in three years.

“We don’t think the recent strong growth in monthly sales is likely to be sustained,” Blerina Uruci, an economist at Barclays Capital in London, said in a note to clients today. “The environment for retailers is likely to remain challenging as consumer spending remains depressed driven by low confidence and slow earnings growth.”

Sales at household-goods stores jumped 3.2 percent in September from the previous month, partly led by back-to-school spending on items such as computers, and demand for new video games. Food sales were unchanged and clothes sales fell 0.7 percent as warm weather curbed sales of winter ranges.

From a year earlier, overall sales were up 0.6 percent in September. Excluding fuel, retail sales rose 0.7 percent on the month and 0.4 percent on the year.

Bank of England

The pound erased declines against the dollar and was trading at $1.5793 as of 11:07 a.m. in London, up 0.1 percent on the day. Bonds fell, with the yield on the benchmark 10-year U.K. government bond rising 3 basis points to 2.5 percent.

U.K. consumer confidence rose for the first time in four months in September as Britons became more optimistic about the economic outlook and spending, GfK NOP Ltd. said on Sept. 30.

Still, minutes of the Bank of England’s October’s policy meeting released yesterday showed officials were unanimous in voting to expand the size of their asset-purchase program to 275 billion pounds ($434 billion) from 200 billion pounds on Oct. 6. The central bank said indicators suggested that growth may be “close to zero in the fourth quarter.”

“The squeeze on households’ real income and the fiscal consolidation were likely to continue to weigh on domestic spending,” it said.

Unemployment

The number of unemployed Britons rose to 2.57 million in the three months through August, the most since 1994. Inflation accelerated to 5.2 percent in September, while data last week showed that annual growth in pay excluding bonuses slowed to 1.8 percent in the three months through August.

Debenhams Plc Chief Executive Officer Michael Sharp said in a statement today that it is “clearly right to remain cautious about the strength of consumer confidence over the next 12 months given the uncertain economic outlook.” The U.K.’s second-largest department-store reported that annual profit before tax rose 4.4 percent to 157.7 million pounds.

The retail sales deflator, a measure of changes in shop prices, fell to 4.8 percent in September from 5.2 percent in August, the statistics office said. Excluding auto fuel, the deflator was 3.3 percent.

--With assistance from Mark Evans in London. Editors: Fergal O’Brien, Craig Stirling

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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