U.K Consumers Are Buying Everything, Retail Sales Jump to 4-Month High

• U.K Consumers Are Buying Everything, Retail Sales Jump to 4-Month High

U.K. consumer spending boosted retail sales in August to the fastest in more than a quarter.

The quantity sold online and in stores rose from 0.6 percent in July to 1 percent in August, according to the Office for National Statistics report released on Wednesday. This is the fastest pace in four months and higher than the 0.2 percent increase predicted by economists.

While the figure signals an improvement in consumer spending even with rising inflation rate, it also indicates a surge in tourist sales due to the weak exchange rate. Therefore, the surge in retail sales might be as a result of summer rush and temporary.

This is because wage growth remains weak and inflation rate is higher than the Bank of England’s 2 percent target, yet consumer spending surged without a rise in earnings.

“If borrowing is driving spending growth, “that doesn’t make for a sustainable pickup,” said James Smith, an economist at ING in London. “While it could be that household income squeeze has peaked, inflation is still outpacing wage growth.”

Also, there were noticeable weaknesses in the report that suggests retail sales is not broad-based. For instance, sales of clothing, footwear, and household goods dipped in the month, indicating that rising import costs are still impacting growth. Therefore, with the average store prices climbing 3.2 percent year-on-year in August, it is unlikely retail sales will have a meaningful effect on the third quarter growth.  A viable reason for policymakers to raise rates.

The Pound gained 0.4 percent against the US dollar to $1.3554 as of 10:50 a.m. London time.