Our main story today:
UK inflation has risen above 10% for the first time in 40 years, driven by soaring prices for food and fuel as households come under mounting pressure from the cost of living crisis.
Thank you for reading. We’ll be back tomorrow. – JK
Michael Pearce, senior US economist at Capital Economics, said:
While overall retail sales were unchanged in July, the details were far more encouraging, with a price-related fall in gasoline sales freeing up households to increase spending on other goods. With prices no longer rising rapidly, the increase in underlying retail sales is consistent with a rebound in real consumption at the beginning of the third quarter.
The decline in gasoline prices last month easily explains the 1.8% fall in gasoline station sales. Motor vehicle sales declined by 1.6%, which was a bit of a mystery given the rise in manufacturers’ unit sales last month. Excluding gasoline and autos, sales rose by 0.7%, the same as in June, with the gain last month led by a 2.7% jump in non-store sales which more than offset small declines in department store and clothing sales. The key difference from June, however, is that prices are no longer rising rapidly, meaning that the increase in nominal spending will feed through to much stronger growth in real consumption in July.
Admittedly, the muted 0.1% rise in food services sales suggests that the recovery in services consumption has slowed, but we calculate that real consumption rose by as much as 0.5% m/m last month. Even accounting for weaker growth in August and September, that leaves third quarter consumption growth on track for growth of 2.0%-2.5% annualised. That suggests the risks to our forecasts that GDP growth will rebound to 2.0% lie to the upside.
