Retail sales drop unexpectedly in August

UK retail sales have dropped by 0.9 per cent in August, a shrink where analysts had expected a 0.4 per cent growth.

In the year to August, that's a 2.1 per cent rise, well below last month's three per cent, and short of economist forecasts of a jump to 3.3 per cent growth.

Sadly, it looks like extremely positive forward looking purchasing managers' index numbers aren't being seen in the hard data. The pound is down against the dollar on the news.

Martin Beck, UK economist, Capital Economics:

The continuation of July’s heatwave may have tempted people outdoors and away from the shops. After all, sales volumes have fallen in five of the last six Augusts at least as warm as August 2013. What’s more, July’s weather-related boost to food purchases may have exhausted itself by August. Indeed, the picture is still looking good for sales in the third quarter. Even if retail sales volumes merely hold steady in September, sales would be 1.3% larger in Q3 compared to Q2.

That said, disappointingly, the pick-up in the housing market does not seem to be spurring sales of household goods, which fell by 1.6% on a monthly basis in August, the third consecutive monthly fall. And with consumers’ real pay still falling, any further consumer recovery is unlikely to be spectacular.

Rob Wood, chief UK economist, Berenberg:

But today’s data do serve to highlight that the recovery will remain fragile while households’ finances remain heavily squeezed. Consumers will probably have to take their foot off the gas a little in the new year as they deal with still falling real wages, so wider economic growth could slow a little. That would support the BoE’s growth forecast and mean that reaching the 7% unemployment threshold for reconsidering interest rate rises is still some way off. We are optimistic that this recovery driven by lower saving can broaden out into something more sustainable next year as real wages start rising again. Higher sterling could help speed up that process.