Retail sales grow as department stores slash their prices

An increase in retail sales in June, driven by department store discount offers, has been hailed by City analysts as the latest indication that the fortunes of the economy are reviving.

The Office for National Statistics reported yesterday that the sales volumes rose by 0.2 per cent last month, following a sharp 2.1 per cent rise in May.

“The consumer has been the driving force of the recovery that has emerged over the first half of the year and we expect momentum to continue to build, as lower inflation and sustained employment growth strengthens households’ purchasing power,” said Nida Ali of the Ernst & Young ITEM Club.

Though sales volumes are still barely above the level reached on the eve of the 2008-09 recession, the value of sales has continued to grow steadily over the past five years, reflecting persistent inflationary pressures.

The retail sector constitutes roughly 5.7 per cent of GDP. The ONS said the sector would contribute around 0.1 percentage points to total growth in the second quarter of the year. Economists are expecting next week’s first estimate of GDP growth from the ONS for the second quarter of 2013 to show an expansion of 0.5 to 0.6 per cent.

There were also further indications of a pick-up in home loans yesterday, aided by the Treasury’s support for the housing sector unveiled in the March Budget. The Council of Mortgage Lenders reported that gross lending in June was the strongest since October 2008. Some £15bn of new loans were made in the month by banks and building societies, a 26 per cent rise on the £11.9bn distributed in May 2012.

“Improvements in the cost and availability of mortgage credit are underpinning a meaningful recovery in the housing market,” said CML chief economist Bob Pannell.

However, there was more disappointing news for small businesses with the Bank of England reporting that lending to the sector remains negative despite the Funding for Lending Scheme, which is designed to increase the flow of credit to small firms.

The Bank’s latest Trends in Lending survey showed net business lending fell by £4.5bn in the three months to May, following a contraction of a similar size in credit in the previous three months.