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UK retail sales unexpectedly drop in October

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UK retail sales unexpectedly drop in October

Retail sales in the UK unexpectedly fell in October, as warm weather kept demand for winter clothing on hold. Retail sales volumes fell 0.7 percent after a 0.6 percent hike the prior month, the Office for National Statistics reported. The median forecast of economists surveyed by Bloomberg expected no change in sales.

On an annualized basis, retail sales volumes jumped 1.8 percent, compared to expectations for a 3.1 percent hike. Despite the drop, the three month average was flat following seven months of growth.
Non-food stores increased 2.7 percent from year-ago levels, while non-store retailing increased 16.3 percent over the same period. The quantity bought at food stores and petrol stations declined at an annualized rate of 0.3 percent and 2.4 percent, respectively.

Retail sales excluding fuel fell 0.6 percent in October, but expanded 2.3 percent on an annualized basis. Household goods fell 1.2 percent on the heels of weak sales in electrical appliances.

“For the next few quarters, weak pay will probably keep retail spending growth contained,” said Rob Wood of London-based Berenberg Bank. Spending power has been restrained, despite Britain’s strong recovery. Wage growth has been outpaced by inflation, which has put pressure on households. Average earnings excluding bonuses rose 0.8 percent between July and September. Consumer inflation fell to its lowest level in more than a year in October, but remains well above the pace of income growth.

“We expect households to continue saving less and less over the next few quarters keeping the economy growing, and next year the weakness in real pay should change with inflation falling,” Wood added.

The British economy accelerated 0.8 percent in the third quarter, according to official government estimates. This represents the third consecutive quarter of positive growth. Earlier this week the Bank of England increased its growth forecast for this year and next, bringing forward its rate guidance. The BOE now expects unemployment to reach its target of 7 percent in the third quarter of 2015.

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