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Brexit latest: Surprise jump in retail sales in July after EU referendum vote

Retail sales rose 1.4 per cent, more than reversing the 0.9 per cent decline in June

Thursday 18 August 2016 09:29 BST

Retail sales rose in July (PA)

There was no sign of British shoppers reining in spending in the wake of the EU referendum result, one of the first "hard" post Brexit vote set of statistics has shown.

Retail sales jumped 1.4 per cent in July, more than reversing the 0.9 per cent decline in June, according to the Office for National Statistics.

City of London economists had expected only a 0.2 per cent increase in the month, anticipating that shoppers would hold back because of uncertainty created by Brexit.

Some post-Brexit surveys of consumer confidence had pointed to a sharp fall in the wake of the vote.

The GfK Index had pointed to the sharpest monthly decline in 26 years.

No Brexit effect yet

The positive news sent sterling up sharply up against the dollar to a two week high of $1.3162. Against the euro the pound jumped to €1.1624.

Pound jumps versus dollar

Reuters Eikon

Joe Grice, the chief economic adviser to the ONS, said the latest retail numbers were "strong" and said there were signs the steep fall in sterling since the June referendum might have attracted overseas shoppers to the UK.

"There is... anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend. Department stores and specialist retailers like jewellers are among those reporting a good month” he said.

However, other analysts cautioned against placing too much emphasis on the latest figures.

"We would be wary about reading too much into the jump in July’s figures. The month-on-month data tend to be fairly volatile and temporary factors such as July’s warm weather seems to have boosted spending" said Ruth Gregory of Capital Economics.

"Consumers’ blissful ignorance won’t last long" said Samuel Tombs of Pantheon, predicting that the high street would be in for a "tough year".

Which is the better signal?

Retail sales account for around 30 per cent of household consumer spending and household spending accounts for around 60 per cent of GDP making retail an important barometer of the direction of the wider economy

6 ways Britain leaving the EU will affect you

Show all 6

1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

nito100

6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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The ONS figures are based on a survey of 5,000 retailers, including all large retailers employing 100 people or more. The data was collected between 3 July and 30 July.

On the same month a year earlier the volume of food sales were up 4.1 per cent in July. Non-food store sales rose 5.6 per cent and department store sales rose 9.7 per cent.

Fuel sales rose 9.9 per cent.

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