British retail sales fell slightly in July, compared with a month earlier. Shoppers spent less on food as supermarkets cut prices as they battle for market share. As Joel Flynn reports, consumer spending has been a major driver of the UK's unexpectedly strong recovery, which has led to questions when the Bank of England will raise interest rates.
It's a tale of two sectors for British retail - food and everything else. Total retail spending was 1.3% higher in July compared with the same month a year earlier, according to the British Retail Consortium. But against expectations, like-for-like sales slid slightly on the year. Shoppers spent less on food. Competition between Britain's leading grocers is pushing prices down. And an early World Cup exit by the England football team led to a slump in food and drink sales. But non-food sales helped drive total retail spending up. Jan Lambregts is from Rabobank. SOUNDBITE: Rabobank Global Head of Financial Markets Research, Jan Lambregts, saying (English): "The rest of the world has all been trying competitive devaluation and depreciation and trying to export their way out of trouble, but if everyone does that it doesn't work. So any sign we're getting from any economy - in this case the British economy - that actually we're seeing a home grown economy is good news. " Consumer spending has been a major driver of Britain's unexpectedly strong economic recovery over the past year - growth is currently seen at 3% for the year. It's an increasingly rosy picture for the British economy. But there are still worries. Recent data suggested employers in the UK still expect wage growth to remain weak - and the Bank of England has warned it expects growth to slow in the second half of this year. What the bank does next is critical. SOUNDBITE: Rabobank Global Head of Financial Markets Research, Jan Lambregts, saying (English): "If they have to be pioneers on this one, taking some of the quantitative easing out, that will be very, very interesting to watch. We know that the Bank of England has been trying to make the case that they're in no rush to take the stimulus away, but that by itself poses, of course, medium term risks." The Bank will next release an updated economic forecast. They'll be focussing on wage growth. Economists will be looking for more information about why productivity also remains lower than before the recession. But until wages start rising again, Brits aren't likely to feel the full benefits of the recovery.