Discounts boost UK retail sales

UK retail sales increased more than expected in July, helped by discounted goods, figures from the Office for National Statistics have shown.

Sales were up 0.7% month-on-month, marking the biggest rise since February, and more than three times above analysts' expectations of 0.2%. Sales were up 4.4% on the same point a year earlier.However, the underlying rate of growth in the three months to July fell to 1.1%, down from 1.4% in June.

Rate debate

Analysts said the stronger-than-expected monthly figures could restart the debate over whether there should be another rate rise to 6%.

The Bank of England has increased UK interest rates five times during the past year, taking them to 5.75%, and until the past few days it was expected to raise them once more before the end of the year.

But on Tuesday, a sharp fall in the rate of consumer prices index (CPI) inflation to 1.9% led many analysts to predict that there would be no rate rises in the short term.

The retail sales data showed that goods whose prices were reduced included furniture and electrical goods, helping raise the sale of household goods by 13.4% year-on-year - the largest rise in nearly six years.

Overall sales of non-food goods rose 7.1% on a year earlier, the highest rate for three years. On the downside, the bad weather contributed to a drop in the sale of summer foods - with sales 0.8% lower than the level seen in July 2006.