Page last updated at 12:19 GMT, Thursday, 20 August 2009 13:19 UK

Strong rise in July retail sales

Shoppers on Oxford Street in London
A monthly rise of 0.2% in July had been expected

UK retail sales rose 0.4% in July from June, taking the annual gain to 3.3%, according to figures from the Office for National Statistics (ONS).

The annual figure from July was the highest since May 2008.

Among the sectors doing well in July, clothing and footwear sales were up 10.3% from July 2008, while furniture and electrical goods also sold well.

The figures have encouraged the view that the UK may be recovering from recession, the BBC's Hugh Pym says.

The strong 1.2% monthly rise announced last month for June was also revised upwards to 1.3%.

Graph of retail sales

Sales from household goods stores were up 4.5% in July compared with June, which was the highest since August 2006.

"The retail sector clearly has built up a decent amount of positive momentum, which could well last a few months more," said Vicky Redwood at Capital Economics.

"But we remain pretty gloomy about the outlook for sales further ahead - not least because of the looming tax rises on the horizon."

'Huge adjustment'

Hugh Pym
Hugh Pym, chief economics correspondent
Positive retail sales figures in July have encouraged the view that the UK may return to economic growth in the third quarter of this year.

The increase in sales in the year to July of 3.3% was the highest for 14 months.

The British economy was still contracting in the second quarter while Germany, France and Japan all recorded growth.

But policymakers are increasingly confident that the combined impact of lower interest rates, and measures such as the VAT cut and the car scrappage scheme, will reverse the trend.

July's retail sales numbers, for the first month of the third quarter, will strengthen that argument. But the governor of the Bank of England will not be swayed from his view that any recovery will be "slow and protracted".

One of the factors likely to lead to the tax rises is the high level of government borrowing, which rose much more than had been expected in July. Public sector net borrowing totalled £8bn in the month, which was the first time the government had had to borrow money in July for 13 years, according to the ONS.

July is usually a month of surplus, because of the timing of corporate tax payments.

The government's overall debt now stands at £801bn, or 56.8% of the country's annual output, its highest level since at least 1974.

"The worse-than-expected public sector deficit emphasises the huge scale of adjustment that the UK is facing over the next few years," said David Kern, chief economist at the British Chambers of Commerce.

"While it is impossible for the government to properly tighten spending when the economy is weak and unemployment soars, a clear medium-term plan must be formulated to illustrate how the public finances will be returned to health."

Other figures released on Thursday showed that mortgage lending in July was 26% higher than it had been in June.

But the figure of £16bn from the Council of Mortgage Lenders (CML) was still more than a third lower than the level in July last year.

The CML predicted that the housing market would slow down again later this year.

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