British retail sales rose at their fastest annual rate in over two years in July as a heat wave boosted sales of barbecue food and outdoor items, adding to signs that third-quarter growth has got off to a strong start.
Retail sales volumes jumped 1.1% on the month – almost twice as fast as expected – to give an annual rise of 3.0%, the highest since January 2011, official data showed on Thursday.
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 rate rise.
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 that was reinforced on Wednesday by robust jobs data and concern from one BoE 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.
INFLATION THREAT?
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 April 2011.
This echoes the message last week from the British Retail Consortium, which represents large chains. The BRC said its members enjoyed their best July since 2006 with sales up 3.9% on the year in value terms, with the weather effect bolstered by a feel-good factor from British sporting success and a royal baby.
ONS figures showed that retail sales values – which unlike the volume measure are not adjusted for inflation, rose an annual 4.9% – the highest since March last year.
