XM Investment Research Desk: Britons defied fears of uncertainty and turmoil in the immediate aftermath of the Brexit vote and instead headed to the high street as warm weather boosted consumer spending in July.
Data out today showed retail sales jumped by 1.4% month-on-month in July, more than reversing the 0.9% drop in the previous month and well above expectations of a 0.2% rise. On a 12-month basis, retail sales beat estimates of 4.2% to rise by 5.9% – the fastest pace in almost a year.
When excluding sales of fuel, retail sales were up 1.5% over the month and 5.4% in the 12 months to July.
Warmer weather lifted sales of clothing and footwear, while sales at department stores were helped higher by promotional offers. There was also some evidence of the weaker pound contributing towards increased spending by tourists, particularly on luxury items such as watches and jewellery. Online sales continued to rise strongly and were up 16.7% over the year.
The pound shot up after the release as the anxiously-waited first full month of official data on consumer spending in a post-Brexit environment confounded earlier surveys that had painted a gloomier picture of consumer confidence after the Brexit referendum.
Sterling surged above 1.31 dollars for the first time in two weeks, peaking at 1.3171. It was also sharply higher against the yen and the euro, hitting 132.26 yen and 0.8591 pounds per euro.
Today’s strong retail sales figures follow yesterday’s solid jobs data, which showed the number of people claiming out-of-work benefits unexpectedly fell by 8.6k in July, while the unemployment rate in the three months to June held steady at 4.9%.
All indicators based on ‘hard’ data have so far revealed few signs of the Brexit vote hurting the UK economy. However, it is too early to assess the longer-term impact and decisions by businesses to delay or cancel their UK investment plans will likely take longer to feed through the statistics.
The pound will likely remain sensitive to incoming UK data over the coming months as any evidence of a milder-than-expected impact on growth from the Brexit shock could lessen the need for further stimulus measures by the Bank of England.