UK Retail Sales Outpace Expectations

UK sales data for last month shows that shoppers overcame the confusion stemming from the outcome of the UK’s Brexit vote to leave the EU, the just released UK retail sales data largely outpaced analysts’ expectations by more than 1.5% month on month in July, as it bounced off a 0.9% fall made in the previous month. The UK’s Office of National Statistics stated last month that retail sales was mostly aided by the warmer weather while there was some inconclusive evidence that the sharp fall in the GBP after the UK referendum had encouraged tourists to spend more while visiting the UK on holiday.

After Joe Grice, Chief Economic Adviser at the Office for National Statistics, explained that: “These are strong numbers showing a pronounced increase in sales compared with last July. Better weather this year could be a major factor with sales of clothing and footwear doing particularly well. There is also anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend, department stores and specialist retailers like jewellers are among those reporting a good month.”

Arnaud Masset, market analyst at Swissquote Bank expressed the disposition that, the jump in the pound suggests investors have been too gloomy about the UK since the Brexit vote, stating that, “Perhaps July’s solid retail sales are a once-off and the positive effects of the weaker pound will be short-lived. However, one thing is certain: the market has been overly pessimistic in the wake of the Brexit vote and clearly needs to better assess the lay of the land”.

Excluding petrol, sales was reported to have grown about 5.4% higher by volume than reported in July for the previous year. This trails a 3.9% annual climb in June, when sales growth calmed noticeably from a previous 5.2% in May.

The released sales data will add to the pool of economic releases and reports that have dropped since the UK referendum and do not yet offer a definitive projection for how the UK economy will be affected by the shocking outcome of the Brexit vote. This month the Bank of England slashed rates to a fresh historic low of 0.25% and embarked on quantitative easing as part of a large stimulus package that is meant to ward off any aftermath stemming from the UK’s decision to leave the EU.

The GBP is currently overwhelmed by bullish bets as it actively climbs higher on disappearing concerns for a recession in the UK economy. The GBP is currently 1 cent higher against the USD currently sitting at 1.3154, a 2 week high, as investors marvel at last month’s 1.4% leap in retail sales. The GBP has also grown by 0.8 eurocents at 1.31631 currently recovering from Tuesday’s 3 year low.

Other data released earlier this week also reflect a very low immediate effect of the Brexit vote on the labour market, but there were signs of inflation pressures building after the plunge in the GBP, which could reduce the spending power of households.