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Warm weather helps retail sales, economic outlook appears sunnier

Ben Brettell, Senior Economist, Hargreaves Lansdown:

Given that falling real wages are continuing to squeeze household budgets, retail sales data is taking on extra significance at present as economists look for signs that consumer spending is coming under pressure.

Today’s release from the ONS showed retail sales rising 2.9% year on year, ahead of expectations for a 2.6% rise. Sales rose by 1.5% in the three-month period from April to June period, making a positive contribution of nearly 0.1 percentage points to Q2 GDP growth. The ONS said that warm weather in June had driven better-than-expected clothing sales, compensating for a decline in sales of food and fuel.

This news adds to a renewed sense of optimism on the UK’s economic prospects. Spending seems to be holding up despite falling real wages, and if the sterling-driven spike in inflation is finally receding, we could see a stronger contribution from the UK consumer in the second half of the year.

Sterling reacted positively to the figures, having fallen earlier in the day, gaining around a third of a cent against the dollar.