UK retail sales miss forecast in September but hold steady

Britain's retail sector performed slightly worse than expected, as the amount of items bought fell short of expectations, official figures released on Thursday (20 October) showed.

According to the Office for National Statistics (ONS), retail sales rose 4.1% on an annual basis in September, compared with an upwardly revised 6.6% increase in August and analysts' expectations for a 4.9% gain.

The revised figure means retail sales in the quarter were 5.4% higher than in the corresponding period in 2015, the largest increase since August 2014.

With the exception of textile, clothing and footwear sales grew in all other sectors, the ONS said, adding the largest contribution came from non-store retailing.

On a month-on-month basis, retail sales were unchanged from the previous month, compared with a 0.3% drop recorded in August and analysts' expectations for a 0.2% gain.

The ONS added the underlying pattern in the retail sector continued to show relatively strong growth with retail sales increasing by 1.8% on a quarterly basis.

Meanwhile, average store prices including petrol stations fell 1.1% year-on-year, with declines recorded across all store types, except textile, clothing and footwear stores and petrol stations. The drop, however, was the smallest decrease since August 2014.

Earlier this week, ONS data showed inflation – as measured by the consumer price index (CPI) – in Britain hit the highest level since November 2014 last month. CPI grew 1% year-on-year in September, compared with analysts' expectations for a 0.9% increase and after climbing 0.6% in August. On a month-on-month basis, meanwhile, inflation edged 0.2% higher, in line with expectations and slightly below the 0.3% gain posted in the previous month.

"While flat retail sales in September could be a sign that consumers are starting to rein in their spending as inflation rises, it should be borne in mind that sales were held back in September by warm weather markedly hitting demand for autumn clothing," said Howard Archer, chief European and UK economist at IHS Markit.

"Higher clothing prices were also seemingly a factor. Furthermore, retail sales were still very strong over the third quarter as a whole, and there could have been an element of some consumers taking a breather after splashing out over the summer."