Despite soaring inflation rates, British retail sales experienced a stronger-than-expected growth in June, buoyed by favorable weather conditions and a rebound in food sales following the

disruptions caused by King Charles' coronation in May, according to official figures released on Friday.

While the country faces nearly 8% inflation, the highest among major economies, some economists predict a potential boost in consumer spending due to a decline in energy prices starting from July 1, providing households with more disposable income.

The Office for National Statistics (ONS) reported a 0.7% increase in sales volumes in June compared to May, surpassing economists' forecasts of a 0.2% rise in a Reuters poll. Additionally, sales were only 1.0% lower compared to the previous year, outperforming expectations of a 1.5% decline.

The rebound in food sales was evident, along with strong performances in department stores and furniture shops. In contrast, clothing and footwear stores saw a dip in sales, potentially attributed to increased dining-out activity during May's additional public holiday for King Charles' coronation.

The record-breaking hot weather in June provided a further boost to supermarkets and department stores, contributing to the overall sales growth.

Despite this positive growth in retail sales, the long-term economic outlook remains less promising. Consumers are grappling with the reality that their money does not stretch as far as it did three years ago, and overall consumption has stagnated in line with the economy.

Market research firm GfK reported a drop in consumer confidence for July, marking the first decline since January. Although spending at retailers is up by 17.9% compared to pre-pandemic levels, the volume of goods purchased remains 0.2% lower, indicating the impact of inflation on purchasing power.

Food inflation, in particular, has been a significant concern, with prices in June soaring by 17.4% year-on-year, remaining close to the 45-year high observed in March.

Amidst the inflation surge, allegations of profiteering prompted investigations into the competition between supermarkets. However, the competition regulator stated that high prices were not a result of weak competition.

The recent data indicated the first monthly decline in retail prices (excluding fuel) since January 2022, just before the inflation pressures intensified due to Russia's invasion of Ukraine.

Despite the rise in Bank of England interest rates to 5% last month, some economists foresee signs of a potential turnaround in retail sales. However, a more significant rebound is likely to be contingent on broader economic improvements, which may not materialize until the second half of 2024.

Contrary to these optimistic views, other analysts remain cautious, predicting an economic downturn in the latter half of the year due to the full impact of higher interest rates. Photo by Jim Goldsmith, Wikimedia commons.