Fuel promotions boost retail sales

A glut of promotions on petrol and high levels of discounting on the high street helped drive a surprise rise in retail sales in July.

Retail sales volumes rose 0.3% between June and July, the Office for National Statistics (ONS) said, defying expectations of a 0.1% fall.

And the figure for June was revised significantly higher to 0.8% from a previous estimate of 0.1% after additional information was received from retailers.

Strong fuel sales were the main driver of growth as supermarkets put on special offers to boost trade, while sales volumes excluding fuel were flat despite the ongoing discounting on the high street but this was still better than the 0.2% fall expected in the City.

The period covered the first two days of the Olympics but the ONS said this had no noticeable impact on sales.

Meanwhile, there was welcome news for hard-pressed consumers after the ONS said shop price inflation slowed to 0.2% in July, its lowest rate since October 2009.

Economists had feared that sales volumes would be weaker in July amid anecdotal evidence that retailers had been forced to bring traditional summer sales forward to June in a bid to boost trade amid the wash-out start to the summer.

But the figures suggest that continued discounting and improved weather in the second half of July helped boost trade.

Vicky Redwood, UK economist at Capital Economics, said: "The latest UK retail sales figures are pretty good - as much for the upward revisions to past months as for July's figure.

"What's more, sales should maintain this recent positive momentum in the near term as the boost from the Olympics comes through."

She believes August's figures will benefit from the feel-good factor around Team GB's success but fears sales may slow again later in the year.

The big upward revision to June's data brings it more in line with industry reports which suggested that retailers benefited from the celebrations surrounding the Queen's Diamond Jubilee.

The revision means that retail sales volumes fell 0.3% in the second quarter of 2012, up from the previous estimate of 0.7%.

But because retail is only a small part of the economy, this is not expected to have a significant impact on the reading for GDP in the second quarter of 2012, which shrank by 0.7%, according to preliminary estimates.

Food retailers saw a 0.4% increase in sales volumes in July although non-food stores continued to suffer, with volumes down 1.8% on the previous month.

The strong growth of internet sales continued, with sales up 14% on the previous year to over £500 million. The internet now accounts for 8.5% of all retail sales excluding fuel.

British Retail Consortium director general Stephen Robertson said sales growth slowed between June and July as the sector failed to receive a pre-Olympics boost.

He said: "July was no golden month for retailers despite the build-up to the Olympics.

"We'll need to see August's figures for the full picture. But with disposable incomes still under pressure and with inflation sneaking back up, underlying conditions remain challenging for the sector."

PA