"It is a disappointing outcome that has taken the wind out of the sails of sterling for now, but the underlying story still looks good with the three month on month total sales growth still up 1.7%, consumer confidence rising, employment increasing and credit availability improving"
- James Knightley, an economist at ING
A day after the Bank of England upgraded its growth forecast on the back of upbeat fundamentals, a separate report showed unexpected weakness in Britain's retail sector. On Thursday the Office for National Statistics said sales at retailers, excluding fuel, dropped 0.9% in August, while no change was expected, and lower from a 1.1% gain in July. Furthermore, the annual rate slowed to 2.1% from July's high of 3.0%. Even after a disappointment, analysts were reluctant to read too much into a volatile series and mentioned the underlying trend still positive. The biggest drag came from food stores where sales plummeted 2.7%. Meanwhile, July's strength may be only a sign of unusually hot weather, while Royal baby birth and successes of British sporting all provided an additional reason to splash out.
Retail report is likely to temper rising optimism about the economic outlook, even though all manufacturing, construction and services sectors strengthened last month. Nevertheless, a bright spot that reflects strong willingness to buy, comes from online shopping, which continued to grow with the median weekly spending soaring to 579.6 billion pounds, or 22.5% higher compared with the corresponding period in the previous year. Moreover, the fact that retail sales volumes accelerated at the fastest pace since November 2012, is solidifying the view British consumers will step up on spending in the coming months.
© Dukascopy Bank SA