U.K. Retailers End Strong Second Quarter on Disappointing Note

(Bloomberg) -- U.K. retailers ended their best quarter in 14 years on a sour note, with warm weather and the World Cup keeping shoppers away from clothing and department stores.

Sales unexpectedly dropped 0.5 percent in June, compared with forecasts for a 0.2 percent gain. The pound fell after the report, dropping as much as 0.7 percent to $1.2983, the lowest since September.

Still, over the three months, the gain of 2.1 percent was the most for a calendar quarter since early 2004. That means the sector will contribute 0.1 percentage point to growth in the period, according to the Office for National Statistics in London.

U.K. Retailers End Strong Second Quarter on Disappointing Note

While people increased spending on food and drink, above-average temperatures throughout the month and the start of the soccer World Cup on June 14 kept them away from other stores, with clothing sales down 0.8 percent. Food stores had their best quarter since 2001.

After a weak start to the year that the Bank of England says was down to cold weather, retail sales have largely been a bright spot for policy makers looking for signs of a recovery in consumption. They are widely expected to raise interest rates at their August meeting, and the odds investors place on a hike were little changed after the retail report, at about 79 percent.

What Our Economists Say:

“An unexpected drop in the volatile retail sales series in June will have little bearing on the Bank of England’s immediate policy choice. We expect the central bank to hike interest rates by 25 basis points next month.”

-- Dan Hanson and Jamie Murray, Bloomberg Economics. Read the full REACT.

Despite the consumer pickup in recent months, the U.K. high street’s woes are continuing. Discount chain Poundworld Retail Ltd. filed for protection from creditors last month, DFS Furniture Plc has warned of a summer slowdown in sales and there are questions over the survival of Debenhams Plc.

Those troubles partly come as traditional bricks-and-mortar stores face increasing competition from the internet. Spending online has jumped 14.3 percent from a year earlier, the ONS said.

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