UPDATE 1-UK retail sales rise boosts recovery prospects

Thu Oct 18, 2012 5:30am EDT

* Retail sales rise more than forecast

* Boost from new winter clothing collection, school uniforms

* Data cast new doubts on further Bank of England easing

By Sven Egenter and Peter Griffiths

LONDON, Oct 18 (Reuters) - British retail sales rose in September as Britons bought the new winter clothing collections and school uniforms, data showed, boosting chances that consumers may keep the recovery on track.

Sales volumes including automotive fuel rose 0.6 percent last month, more than making up for a 0.1 percent dip in August, the Office for National Statistics said on Thursday. Economists had forecast an increase of 0.4 percent on the month.

Clothing and footwear sales rose 2.0 percent on the month.

Between July and September, retail sales were 1.0 percent higher than in the previous three months, posting the strongest quarterly rise since the second quarter of 2010.

Sterling rose and UK gilt futures turned negative after the data, which added to views that Britain posted solid growth in the third quarter and exited recession.

At the same time the robust sales together with a jump in retail price inflation may dampen the Bank of England's enthusiasm for more monetary policy stimulus.

"Today's retail sales report is relatively encouraging as it suggests that consumption was up a touch in Q3," said Newedge Strategy economist Annalisa Piazza.

Some policymakers may conclude that more stimulus was not needed at the current stage, she said, adding that the next sets of surveys and data would be crucial.

"Some strength in business confidence - for example - might convince the Monetary Policy Committee that no action is needed for now," Piazza said.

Retail sales were 2.5 percent higher than in September 2011, also a stronger increase than forecast.

BACK TO SCHOOL

Britons have been suffering the worst squeeze in income for over 30 years on the back of soaring food and fuel prices, higher taxes and slow wage rises, and many cut back on non-essential spending.

Retailers reported that families had pushed back the purchase of school uniforms into September and many people bought new winter clothing, the ONS said.

Retail sales excluding fuel also increased 0.6 percent on the month and were 2.9 percent higher than in September 2011, also ahead of economists' forecasts.

A drop in inflation to a near three-year low at 2.2 percent in September has fuelled hopes the squeeze is easing and rising employment may also help Britons gain confidence to spend more.

In a potentially worrying sign for consumers and central bankers, annual retail price inflation - measured by the implied deflator - jumped to 0.7 percent in September from 0.2 percent in August, the first rise in the deflator since March.

Most economists have been expecting the central bank to increase its quantitative easing asset purchases once the current 50 billion pound round is completed in November.

Weak business surveys have stoked fears of a relapse in the economy as the austerity drive and the euro zone debt crisis continue to weigh.

However, a survey by the CBI business lobby showed late last month that retailers expected a pick up in sales in October.

Booker Group Plc, Britain's biggest cash-and-carry wholesaler, reported a 13 percent rise in its first-half profit as demand from caterers and small retailers held up in unusually wet weather and weak consumer spending in the UK.