LONDON (Reuters) - British shoppers are spending strongly and more people are trying to buy homes, according to industry data on Wednesday that is likely to strengthen the Bank of England’s conviction that the economy has shrugged off a weak start to the year.
While economists cautioned that the latest figures did not necessarily point to robust growth later in 2018, most still expect the BoE to raise interest rates next week for only the second time since the 2008 financial crisis.
The longer-term challenges facing retail, which include Brexit and structural changes in the sector, are seen by economists as significant.
The Confederation of British Industry’s retail sales gauge showed stores enjoyed robust sales growth in July, slowing less than expected as the heatwave that boosted sales growth to a nine-month high in June continued to lift demand.
Banks’ mortgage approvals for house purchase also hit a nine-month high in June, according to seasonally adjusted figures from industry body UK Finance, after a period of sluggish demand.
“Ongoing evidence that consumers have stepped up their spending fuels our belief that the Bank of England is more likely than not to raise interest rates from 0.5 percent to 0.75 percent,” said Howard Archer, chief economist at consultants EY ITEM Club.
An official measure of retail sales for the second quarter of 2018 showed the fastest quarterly growth since 2004, and the BoE expects second-quarter GDP growth to rise to 0.4 percent from 0.2 percent in the first three months of the year.
The CBI’s retail sales balance fell to +20 in July from a nine-month high of +32, a slightly smaller drop than either retailers or any economist polled by Reuters had expected.
Looking at the three months to July as a whole, sales growth of +21 was the highest since December 2016.
But the heat kept shoppers away from clothing and furniture stores, and forward-looking measures were less robust. Retailers expect sales growth to flatline in August, and the survey’s gauge of orders with supplier was the weakest since October.
“Long-term challenges facing the retail sector are significant. Continually subdued real wage growth means that households are still feeling the pinch, and retailers are still grappling with deeper structural issues,” CBI economist Alpesh Paleja said.
UK Finance’s data showed strong growth in re-mortgaging, as well as the pick-up in new mortgages, as households tried to lock in lower interest rates.
Consumer lending growth edged up to 4.1 percent in the year to June from May’s low of 3.9 percent, but remains soft by historic standards.
“While consumers have perked up recently, they still face a pretty challenging environment and there is no guarantee that they will spend at a robust rate over the coming months,” Archer said.
Reporting by David Milliken,; Editing by Andy Bruce and Stephen Powell
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