Retail sales volumes jumped 1.1% on the month — almost twice as fast as expected — to give an annual rise of 3%, the highest since Jan 2011, official data showed yesterday.
Ten-year gilt yields briefly returned to a near two-year high after the data, as traders speculated the economy might recover faster than the Bank of England expects, triggering an earlier-than-planned interest raterise.
“Wow again. It’s hard to remember the last time a UK data release wasn’t stunningly positive,” said Rob Wood, UK economist at Berenberg Bank.
“Low interest rates, a sunnier outlook, and rising house prices are getting consumers out consuming.”
However, Ann Pettifor, director of Prime Economics, claimed that Britain has an “Alice in Wongaland economy” reliant on shopping sprees fuelled by payday loans and other debt.
Last week, new Bank of England governor Mark Carney said the central bank would not raise interest rates until unemployment sank to 7%, something he forecast would take three years.
But many in the markets are betting a rate rise could come sooner — a view reinforced on Wednesday by robust jobs data and concern from one Bank of England policymaker that Carney’s guidance policy had inadequate safeguards against high inflation.
Britain’s economy grew an unusually rapid 0.6% in the three months to June, and some economists say third-quarter growth could be faster, with support to consumer morale from government schemes to aid house purchase.
“At the minute this is a sugar rush of low interest rates but there’s a good chance it can broaden out into something more sustainable over the next year,” Wood said.
Others question how long a recovery currently largely driven by consumer spending can continue at a time when inflation is still rising faster than wages.
“People are prepared to spend more than they earn. This is bad growth — but I’d rather have bad growth than no growth,” said Alan Clarke, an economist at Scotiabank.
The Office for National Statistics said feedback from supermarkets suggested the sunny weather had boosted sales of food, alcohol and clothing, with supermarket sales growing at their fastest annual rate since Apr 2011.