UK Retail Sales Fall Unexpectedly; Budget Deficit Remains Below Estimate

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UK retail sales dropped unexpectedly in July driven by the weakness in both the food and non-food store sales, official data revealed Friday.

Another report showed that the budget deficit logged its second highest July level since records began in 1993 but remained below economists' forecast.

Retail sales fell 2.5 percent month-on-month in July, reversing a 0.2 percent rise in June, the Office for National Statistics said. Sales were forecast to climb 0.4 percent.

Excluding auto fuel, retail sales were down 2.4 percent on month after staying flat in the previous month. Economists had expected an increase of 0.3 percent.

Food store sales decreased 1.5 percent following an increase in the previous month when sales were positively boosted by the start of the Euro 2020 football championship.

At the same time, non-food stores reported a decline of 4.4 percent in sales volumes driven by falls in other stores such as second-hand goods stores and computer and telecoms equipment stores.

On a yearly basis, retail sales volume including auto fuel, increased 2.4 percent following a 9.2 percent rise in June. This was much smaller than the expected growth of 6 percent.

Excluding auto fuel, retail sales growth eased to 1.8 percent from 6.8 percent in June. The expected rate was 5.7 percent.

Public sector net borrowing, excluding public sector banks, reached GBP10.4 billion in July, the ONS reported. This was the second-highest July borrowing since monthly records began in 1993, but GBP 10.1 billion less than in July 2020.

Nonetheless, the GBP 10.4 billion deficit was comfortably lower than the Office for Budget Responsibility's forecast of GBP 15.6 billion.

During the financial year to date, public sector net borrowing decreased GBP 61.6 billion to GBP 78.0 billion. However, this was the second-highest financial year-to-July borrowing since monthly records began in 1993.

At the end of July, public sector net debt was GBP 2,216.0 billion or around 98.8 percent of GDP, the highest ratio since the 99.5 percent recorded in March 1962.

While there was good news on public borrowing, the slump in retail sales added to other evidence indicating that in July the economic recovery slowed to a crawl, Ruth Gregory, an economist at Capital Economics, said.

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