Sun shines for retailers as sales jump 0.6% in June

Sunny (Taiwan OTC: 1819.TWO - news) weather is being credited for a better-than-expected leap in retail sales last month that boosted economic growth.

The Office for National Statistics (ONS) reported a 0.6% increase in sales volumes in June after a dip of more than 1% in May.

It meant, the number crunchers said, that sales had grown by 1.5% over the second quarter of the year as a whole.

The ONS calculated it would add almost 0.1% to overall output in the economy, which is tipped to have expanded at a better pace than the 0.2% recorded in the three months to March.

It has helped alleviate concerns over consumer spending - the main driver of UK growth since the financial crisis - and suggested it has not dried up completely due to the Brexit-linked squeeze on household budgets from weaker wage growth and higher prices.

However, it could also stoke concerns at the Bank of England that too many people are living beyond their means as policymakers mull a possible rise in interest rates to combat inflation.

ONS senior statistician Kate Davies credited the heatwave across much of the UK for the spurt in sales.

She (Munich: SOQ.MU - news) said: "Today's retail sales figures show overall growth. A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales for the month.

"Looking at the quarterly data, the underlying trend as suggested by the three-month on three-month movement is one of growth, following a fall in quarter one, suggesting a relatively flat first half of 2017."

The data initially helped the pound rise back above the $1.30 level after jitters in early trading, though it later turned lower on comments from the European Central Bank and fears over Brexit talks.

The retail figures were seen as keeping alive the prospect of a UK interest rate hike as support grows within the Bank of England for an increase.

However, a separate release from the ONS this week was seen as damaging the case, as the pace inflation - price increases - was found to have dropped significantly last month.

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Paul Hollingsworth, UK economist at Capital Economics, said: "We shouldn't get too carried away by these figures. After all, the retail sales figures are very volatile on a month-by-month basis and the heatwave in June provided a boost to clothing sales that may not be sustained.

"Nonetheless, the fact that growth in sales values also accelerated in June suggests that households are not tightening their belts in response to higher inflation or Brexit uncertainty.

"All in all then, after a string of more downbeat news recently, today's figures provide welcome support for our view that the economy should maintain a decent amount of momentum over the coming quarters."