BRITISH RETAIL sales rose twice as fast as expected last month but government borrowing posted a record deficit for the month of July as tax receipts have collapsed due to the recession, official figures showed yesterday.
The Office for National Statistics said sales rose 0.4 per cent in July, taking the annual rate to a gain of 3.3 per cent – its highest since May 2008 – as furniture and electrical stores enjoyed a bumper month.
“The gains in retail sales give us greater confidence that GDP will rise in the third quarter, meaning that the UK exits recession,” said James Knightley, an economist at ING.
While consumer demand is holding up during Britain’s worst recession in decades, government finances are not. Public sector net borrowing hit £8.016 billion in July whereas analysts had predicted just £500 million. July is normally a surplus month but tax receipts have fallen more than 20 per cent, with the unemployment rate hitting a 13-year high of 7.8 per cent.
Separate figures from the Bank of England underlined the problems facing British companies. Net lending to businesses fell for a third month in June, despite billions of pounds of taxpayer support for the banks. Lending was probably down again in July, the BoE said. Sterling rose and gilt futures fell after the stronger-than-expected retail sales figures boosted investor confidence that the recession is bottoming out.
But the jury is still out on whether the Bank of England will need to expand its quantitative easing programme – buying assets with new funds to pump money into the economy – beyond the £175 billion currently earmarked.
The Treasury took a sanguine view on the grim borrowing figures, saying they reflected the economy’s exceptional weakness earlier this year.
The public deficit for the fiscal year so far stood at just under £50 billion more than three times the level in April to July last year. The government expects borrowing to reach £175 billion this year. – (Reuters)
