World Cup boosts shop sales – but consumer confidence set to retreat

The World Cup helped push retail sales unexpectedly higher during June, the Office for National Statistics said yesterday. The ONS reported that shop sales volumes increased by 0.7 per cent in June from May, with values up 0.6 per cent.

Television sales, in particular, were boosted by the football coverage and the household goods sector saw the highest growth on the month.

The higher-than-expected figure was down slightly from a 0.8 per cent increase in May from April. Compared with this time last year, sales are up by 1.3 per cent. David Kern, the chief economist at the British Chambers of Commerce, said: "While the recovery in consumer spending is welcome, there is no room for complacency. The economy is still weak, businesses are struggling and the full impact of the emergency Budget's austerity measures are yet to take effect. Risks of a setback remain serious and it is important for the MPC and the government to concentrate on supporting business growth and the fragile recovery."

City economists added that, while special factors such as the World Cup and the sunny weather distorted the picture a little, the basic message was mildly encouraging and that the recovery appears to be on track, at least for the time being.

However the emergency Budget on 22 June seems to have dented consumer sentiment in most surveys and the reality of relatively high inflation, rising unemployment and tax hikes means that consumers will necessarily be constrained over the next few years. The chief economist of the Bank of England, Spencer Dale, has said that inflation will remain above the official 2 per cent target for the whole of 2011, partly because of the rise in VAT to 20 per cent scheduled for next January.

Analysts at Capital Economics say that the nation faces the toughest squeeze on household budgets since the mid-1970s, with around £3,000 a year lopped off the purchasing power of household budgets by 2014.

Taking consumer-related indicators more broadly – including confidence surveys – mortgage approvals and car sales, the picture has been weakening most recently.

Despite softening demand in its home market, export demand for British-built prestige cars has helped push UK car production markedly higher. Some 72 per cent of UK car output is exported, so home sales are less important than the state of key markets such as the eurozone and US.

According to the Society of Motor Manufacturers and Traders, car production rose by 28.6 per cent in June and was up 55 per cent over the year-to-date, albeit from an extremely low base and, until the spring, assisted by the £2,000 scrappage scheme. More of a sign of reviving business confidence, commercial vehicle output rose by 24.9 per cent in June and 49.6 per cent in the first six months of 2010.

Mike Steventon, partner in KPMG's Automotive Group, commented: "UK car production saw another month of strong growth in June, fuelled by demand from overseas markets for luxury cars such as Jaguar and Land Rover.

"Demand for prestige cars is growing globally, which has led to many of the luxury car manufacturers ramping up production. However, the story in volume car production isn't so promising. The underlying issue of overcapacity remains the elephant in the room."

Food store sales fell in June, according to the ONS data, but this may simply be a reversal of the recessionary switch from eating out to staying home.

The tournament's winners and losers

* Justin King, the chief executive of Sainsbury's, spotted the potential of the vuvuzelas at a football match in South Africa in December. Subsequently, the grocer's World Cup buyer snapped up 75,000 and they sold out quickly during the tournament. Sainsbury's total sales rose by 5.3 per cent for the 12 weeks to 11 July (the day the World Cup ended), according to Kantar Worldpanel.

* Sports Direct, the retailer by owned by Mike Ashley, kicked off its World Cup campaign with the launch of Umbro's England "away" red shirt on 3 March. In the build-up to the tournament, the group said that sales were buoyant and culminated in the "strongest trading day" it has ever experienced on the day of the England v US match.

* Luminar, the UK's biggest nightclub group, partly blamed the World Cup for a 19.9 per cent drop in sales for the 19 weeks to 8 July. The operator of the Oceana clubs said "the World Cup has adversely affected trading". Luminar added the tournament knocked an additional 6 per cent of its sales "run rate" for the year to date.

* Whether it was fans passing on food or the pub altogether, Mitchells & Butlers said the football took the gloss off its robust performance. The pub group said the month of the World Cup had a "negative impact on food sales", which dragged down its like-for-like sales growth by about 2 per cent for the nine weeks to 17 July.

James Thompson