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UK Retail Sales Exceed Expectations in June

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UK retail sales experienced a stronger than expected increase in June, driven by both food and nonfood purchases. The start of the summer promotional season played a crucial role in boosting footfall, leading to a 0.7% month-on-month rise in retail sales volumes. This figure was higher than the previous month’s revised increase of 0.1% in May, according to data from the Office for National Statistics.

Economists polled by The Wall Street Journal had anticipated a more modest 0.2% increase, making the actual reading even more positive. Nonfood sales saw a significant rebound, rising by 1.0% in June after a 0.5% decline in May. Department stores experienced a particularly noteworthy surge of 1.9% in sales volumes, largely due to the introduction of summer discounts and favorable weather conditions.

Food-store sales volumes also rebounded, increasing by 0.7% in June, following a dip of 0.4% in May. However, it is worth noting that despite the recovery, these figures still remain 2.6% below the pre-pandemic level observed in February 2020. This suggests that high inflation and the impact of interest rates on household spending continue to limit purchases.

June’s annual inflation rate in the UK was 8.1%, slightly lower than May’s 8.7%. However, both figures are still considered high by historical standards, with food inflation reaching a significant 17.3%. Additionally, the Bank of England recently raised its key interest rate to 5% and is expected to introduce further increases in August.

In contrast to overall sales performance, automotive fuel-store sales volumes experienced a slight decline of 0.3% in June, following a significant rise of 1.7% in May 2023. When excluding auto fuels, overall sales increased by a solid 0.8%, as reported by the ONS.

Using a less volatile measure of sales volumes over the three months leading up to June, there was a 0.4% increase compared to the previous three-month period. However, on a year-on-year basis, sales were down by 2.2%, indicating that the UK’s economic challenges and the ongoing cost-of-living crisis continue to negatively impact retail spending.

Furthermore, recent data revealed that UK consumer confidence weakened in July, primarily due to the inflationary squeeze on purchasing power and household impact caused by interest rates.

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