Retail sales in UK increase 1.1% in July

Retail sales grew at the fastest pace since February last month and nearly three times as much as the City expected as shoppers splashed out on clothes and other non-food items.

Sales volumes jumped by 1.1% in July from June including petrol, and by 0.9% excluding fuel, according to figures from the Office for National Statistics released this morning. The numbers wrong-footed City economists, who had expected sales growth to slow to 0.4% from 0.7% in June.

The figures boosted the pound, which rose over a cent from today's lows against the dollar to $1.5658. It also climbed by around 0.5% against the euro to 1.2860.

There was also good news from the manufacturing sector, where factory orders are still falling, but at the slowest rate since August 2008, according to a CBI survey. And signs of improvement in Britain's public finances emerged today when the government revealed that borrowing in July was only 3.8bn, compared with 6.1bn a year ago.

Sales at specialist retailers such as jewellers, sports goods stores, computer sellers and bookshops jumped 6.1%, the highest since February 2008, while online and mail order sales were 4.3% ahead. Clothes and shoe shops enjoyed a 0.9% gain in sales. Petrol sales jumped by 4.2%. By contrast, food stores recorded a 1% drop and household goods shops suffered a 0.7% fall.

"The key message is that the consumer is not yet dead," said Brian Hilliard of Soci t G n rale.

Andrew Goodwin, of the Ernst & Young Item Club, said: "Given that June's sales had apparently been boosted by World Cup-related spending, we could have reasonably expected sales to dip.

"But there are big question marks over whether the recent resilience of retail spending can be sustained, given the numerous headwinds that are buffeting households," he added.

"The combination of weak earnings growth and high inflation is squeezing real incomes, while unemployment is likely to remain high with the public sector job cuts on the way. And the housing market, the fortunes of which tend to be tied closely to those of the retail sector, appears to be heading for a double dip."

The strong figures contrast with gloomy reports from retailers. Clothing chain Next has warned that consumer spending is slowing down and likely to suffer even more in coming months as the government's austerity measures take hold and the rise in VAT kicks in at the start of next year. Asda also warned of an age of austerity when it posted a second quarter falling sales earlier this week.

By contrast, penny-pinching is benefiting discount chain Poundland, which is on the hunt for bigger stores after delivering a 130% jump in annual profits.