Retail sales 'unexpectedly rise in July'

Retail sales have taken an unexpected upward turn, according to fresh figures for July, exceeding previous estimates for the summer month.

The Office for National Statistics (ONS) has revealed sales volumes increased by 0.3 per cent and were 2.8 per cent higher than the same time last year.

Furthermore, it revised up June's monthly sales from 0.1 per cent to 0.8 per cent, giving analysts cause to believe initial estimates the economy shrank by 0.7 per cent in the second quarter were overly pessimistic and raising hopes the recession may not be as deep as originally thought.

The ONS data highlights that the growth in retail sales in July was driven by fuel consumption, which were up 2.6 per cent, as supermarkets encouraged motorists onto forecourts with successful promotional campaigns.

Petrol and diesel aside, sales were unchanged and stores continued to slash prices to promote footfall - but even this outcome was better than originally anticipated by economists.

Food sales were up 0.4 per cent, but clothing and footwear were down 1.8 per cent - perhaps due to the poor weather putting shoppers off buying summery clothes and accessories.

The ONS has also stated that retailers reported no impact from the first two days of the Olympics.

Stronger gains in the construction and factory sectors, coupled with falling unemployment, could indicate that national income as measured by gross domestic product (GDP) is not contracting at the rapid pace it was first estimated.

Stephen Robertson, director-general of the British Retail Consortium, commented: "We'll need to see August's figures for the full picture. But with disposable incomes still under pressure and with inflation sneaking back up, underlying conditions remain challenging for the sector."

At 14:30 BST, the FTSE 100 index in London was subdued, shedding 5.1 points to an index value of 5827.9 points, with Admiral Group, Prudential and Pennon Group pulling the benchmark lower.