UK retailers get unexpected boost

UK shoppers took advantage of competitive retail prices in August

LONDON, England -- UK retailers received an unexpected boost in sales in August, with consumers defying the experts and digging deeper into their pockets despite signs of a struggling economy.

Sales grew by 0.6 percent last month from a revised 0.5 percent in July, while rising 5 percent on a year-on-year basis, the Office for National Statistics said on Thursday.

Economists had expected sales to grow by just 0.4 percent in August.

The stronger-than-expected sales numbers were attributed to a reflectively slow rise in prices as retailers attempted to attract customers in an increasingly competitive environment.

That has also had an impact on inflation, with underlying prices -- which do not include mortgage payments -- edging up just 0.3 percent in August, pushing the annual rate to 1.9 percent from 2 percent in July.

There are also fewer people looking for work in the UK, which has also helped sales. The jobless rate was at 3.1 percent in August, the lowest level since July 1975.

At the same time, the comparison of August sales data with the two previous months is somewhat distorted because of weaker retail activity during Queen Elizabeth II's golden jubilee celebrations and the World Cup.

Still, the August figures may ease fears of a collapse in consumer spending, which has been propping up the UK economy, which grew by just 0.6 percent in the second quarter after stagnating in the previous two quarters.

"The latest retail sales suggest there is still life in the UK consumer sector at this stage," Audrey Childe-Freeman, an economist at CIBC Wood Gundy, told Reuters.

"It's quite reassuring, and as long as we see the labour market remains reliant, and unemployment is not rising, conditions in the consumer sector should remain relatively favourable."

Added Brian Hilliard, chief economist at SG Securities: "Consumer demand growth has been quite strong and the puzzle has been retail sales numbers until now have shown much greater weakness than lending data and the housing market would indicate."