UK retail sales rose by 1 per cent in August, the largest rise seen in four months and way ahead of the 0.2 per cent rise forecast.
The pound rose by 0.4 per cent against the dollar to $1.356 on the news, as investors priced in the increasing likelihood of the Bank of England raising interest rates in November.
Retail sales were driven by spending on items such as watches and jewellery, possibly indicating the weak pound attracting overseas buyers. There were also gains for floor coverings and dispensing chemists. Sales at department stores rose by 1.1 per cent and non-store sales jumped 5 per cent as consumers felt confident enough to spend more on non-essential goods.
Retailers have been among the best-performing UK shares this month as brighter outlooks emerged from stores including Next Plc, JD Sports Fashion Plc and Primark owner Associated British Foods Plc.
The FTSE 350 General Retailers Index rose 1.5 per cent on the day, taking its gain since August to almost 7 per cent.
Ben Brettell, senior economist at Hargreaves Lansdown, commented: ‘Spending has defied expectations of a slowdown since the Brexit referendum, and currently seems to be holding up despite weak wage growth and above-target inflation.
‘This could bode well for economic growth – the UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into weak retail sales.’
However, not all economists were as optimistic.
ING economist James Smith said: ‘It’s worth asking where the impetus for any improvement in spending is coming from.
‘While it could be that the household income squeeze has peaked, inflation is still outpacing wage growth. It appears that the near-10 per cent year-on-year rise in consumer credit we’ve seen this year is still playing an important role, and that doesn’t make for a sustainable pick-up in growth.’