2018.07.1909:30:00UTC+00UK Retail Sales Log Strong Gain In Q2, Despite Weak June

UK retail sales revealed a mixed bag as they unexpectedly declined in June, but the quarterly growth was robust, preliminary data from the Office for National Statistics showed Thursday.

Retail sales dropped 0.5 percent from the previous month, while economists' were looking for a 0.2 percent increase. The decline came after a two months of strong growth. In May, sales rose 1.4 percent.

Continued growth in food sales was offset by declining spending in many other shops as consumers stayed away from stores and instead enjoyed the World Cup and the heatwave, ONS senior statistician Rhian Murphy said.

In the three months to June, sales rose 2.1 percent, marking the fastest growth since February 2015.

Food stores led the strong growth, up 2.2 percent, which was the biggest since May 2001.

Continued good weather and World Cup celebrations had encouraged food and drink sales, the ONS said, citing feedback from supermarkets.

"The big quarterly rise in retail sales volumes in Q2 has provided yet more evidence that a consumer revival is now underway," Capital Economics economist Ruth Gregory said.

Citing the potential for real pay rises, the economist reckoned that annual spending growth was likely to pick up this year, from 1.2% in the first quarter to about 2 percent in mid-2019. "Overall, then, the recovery in the consumer sector supports our view that an August interest rate hike is more likely than not," Gregory said.

On a year-on-year basis, retail sales grew 3 percent in June after 4.5 percent rise in May. Economists had forecast 3.5 percent growth.

Excluding fuel, retail sales fell 0.6 percent monthly in June following 1.4 percent gain in May. Economists had predicted 0.2 percent gain.

Compared to a year ago, retail sales ex-fuel rose 2.9 percent in June after 4.1 percent climb in the previous month. Economists had expected a 3.7 percent increase.

ING Bank economist James Smith also expects the central bank to hike its key interest rate in August.

"But after then, Brexit uncertainty, pressures in the retail sector, as well as moderating core inflation, could make it increasingly complicated for the Bank of England to hike again later this year," Smith said.

"Once the BoE has hiked in August, we currently don't expect any further rate rises before May next year at the earliest."