UK retail sales grow at fastest since 2004 in Q2, despite June dip
* UK retail sales unexpectedly dip 0.5 pct m/m in June
* Q2 sales growth strongest since 2004 at 2.1 pct q/q
* ONS says World Cup and hot weather hurt non-food sales
* BoE (Shenzhen: 000725.SZ - news) to decide on rate rise at August meeting
(Adds further economist reaction, graphic)
By David Milliken and Jonathan Cable
LONDON, July 19 (Reuters) - British shoppers stepped up
purchases by the most in over a decade in the second quarter
despite lower spending in June, official data showed on
Thursday, giving the Bank of England some reassurance that a
sluggish start to 2018 is over.
Retail sales volumes in June alone unexpectedly fell 0.5
percent from May - at the low end of economists' forecasts in a
Reuters poll - as the World Cup kept some shoppers out of stores
after extremely rapid growth during the previous two months.
Sales for the second quarter as a whole were 2.1 percent
higher than the first three months of the year, the biggest
calendar-quarter increase since the first quarter of 2004,
Britain's Office for National Statistics said.
But financial markets honed in on the weaker June figure,
which pushed sterling below $1.30 for the first time since
September 2017, after a week in which the British currency has
been battered by political disputes over Brexit.
"An August rate hike is in the balance. Whether or not one
is delivered, the trajectory thereafter will be extremely
shallow," said Tom Stevens, an investment director at fund
manager Fidelity International.
Most economists polled by Reuters at the start of the week
predicted that the BoE would raise rates on Aug. 2 for only the
second time since the financial crisis.
HSBC's Elizabeth Martins, while expecting sales growth to
slow further this year, said the BoE was likely to focus on the
strong quarterly data as it had taken a 'glass half full'
approach to the UK economy of late.
But the dip in sales in June - which follows soft wage
growth and inflation figures earlier in the week - revived some
investors' concerns that they may see a repeat of May, when the
BoE held off from a widely expected rate rise due to a string of
soft data in the run-up to its policy meeting.
Retail sales growth and Britain's economy overall slowed in
the first three months of 2018, due to heavy snow as well as
ongoing pressures from high inflation and the anticipation of
next year's Brexit. The BoE said in May it would delay raising
rates until it was sure that growth was back on track.
June retail sales were 2.9 percent higher than a year
earlier versus forecasts of a 3.7 percent rise, slowing from 4.1
percent in May, which had been the fastest annual growth rate
since November 2016.
BOOST TO GDP
The ONS said the strong data for the retail sector - which
makes up just 5 percent of the economy - would probably add 0.1
percentage points to second-quarter GDP growth.
Earlier this month BoE Governor Mark Carney said the economy
appeared to be growing as forecast - bolstering market
expectations for a rise - though his deputy Jon Cunliffe, who
opposed the last rate rise in November, said wages were growing
a bit less than the BoE had forecast.
Overall economic growth in Britain this year is likely to be
the weakest since 2012, according to the International Monetary
Fund, which cut its forecast to 1.4 percent on Monday.
Cunliffe's view got a boost on Tuesday, when fresh data
showed earnings rising at the slowest rate in six months. And on
Wednesday inflation unexpectedly held steady, in part because
heavy discounting of clothing negated the effect of higher fuel
prices.
The latest retail sales data showed clothing sales suffered
from the heat, but food and drink retailers did well as shoppers
took advantage of unusually hot weather.
"Warm weather encouraged shoppers to buy food and drink for
their BBQs," ONS statistician Rhian Murphy said.
"However ... continued growth in food sales (was) offset by
declining spending in many other shops as consumers stayed away
from stores and instead enjoyed the World Cup and the heatwave,"
she added.
Online fashion store ASOS (LSE: ASC.L - news) reported rapid British
sales growth last week, outstripping overseas sales.
But traditional clothing retailers such as Marks & Spencer (Frankfurt: 534418 - news)
, Debenhams (Frankfurt: D2T.F - news) and House of Fraser have struggled,
and furniture retailers DFS and Dunelm last week reported
lacklustre results, partly due to the hot weather.
(Reporting by David Milliken
Editing by Hugh Lawson)