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UK retail sales rise less than expected putting pound under pressure

UK retail sales in July rose by a much smaller amount than expected, increasing by 0.1% on the month, against forecasts of a 0.4% increase. On a 12-month basis, sales volumes were up 4.2% from a year ago, against estimates of a 4.4% rise.

But the soft headline figure was mostly due to lower fuel sales as retail sales excluding automotive fuel showed a healthier rise of 0.4% in July compared to June, in-line with estimates. The annual rate also came within estimates, rising by 4.3% from a year earlier.

The underlying trend remains strong with the 3-month on 3-month average rate growing for the 29th month in-a-row, which is the longest period of uninterrupted growth since records began.

The biggest increases in sales volumes came from household goods stores and non-specialized stores such as department stores. Fuel sales were up 3.3% over the last 12 months but in terms of value, sales were down by 8.3% from a year earlier, reflecting the lower price of fuel. Sales from food stores were up by a more modest 1.3% over the year, but the value of sales was down by 0.8% as intense competition within the British supermarket industry is driving prices down.

Average store prices continued to fall for the 13th consecutive month and were down by 3.0% from 12 months ago. Prices fell across all categories of stores with the exception of clothing and footwear where prices were up 0.8% from a year ago.

The weaker-than-expected rise in the headline figure does not alter the current positive outlook for consumer spending in the UK economy. But it may make the Bank of England less inclined to rush ahead with a decision to raise interest rates before inflation has moved substantially closer to its 2% target.

The pound came under pressure, falling sharply against the dollar after the data. Cable dropped from around 1.5670 to a low of 1.5605, but later recovered slightly to 1.5614. Sterling was also lower against the euro and the yen. The single currency advanced to a one-week high of 0.7139, while against the yen, the pound dropped to a low of 193.28 before rebounding to 193.70.

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