UK retail sales surge past pre-pandemic level as public debt soars over £2 trillion

BRITISH retail sales surged past their pre-coronavirus level in July, the first full month that shops selling non-essential goods were open since the country went into lockdown in March.

The report came as separate government borrowing data showed public debt rose above £2 trillion in July for the first time and reached 100.5 per cent of gross domestic product -- its highest as a share of GDP since 1961.

The unexpectedly robust retail sales figures showed the strength of consumer demand even as other parts of the economy are struggling to recover from recent hefty losses.

Retail sales volumes rose by 3.6 per cent from June, and were 1.4 per cent higher than in July 2019, the Office for National Statistics said.

That represented a sharp recovery from double-digit falls in April and May.

Compared with February, before Britain was broadly affected by the pandemic, sales were 3 per cent higher.

"This uptick in retail consumption may help ease concerns over the fragility of the UK economy -- but not for long," said Alistair McQueen, head of savings and retirement at Aviva.

In another positive sign, August's Purchasing Managers' Index (PMI) data showed the fastest growth in almost seven years.

But Britain's economy still faces a long recovery after shrinking by a record 20 per cent in the second quarter, the largest decline of any big country.

"The UK is still seeing a V-shape bounce in activity. But ... a hot summer can quickly turn to a cold autumn," HSBC economist Liz Martins said, pointing to a softening in euro zone business activity as coronavirus cases begin to rise again.

Britain's retail sector has enjoyed a much faster bounce back than almost all other parts of the economy hit by the coronavirus lockdown. But there have been contrasting experiences for different types of retailers.

Supermarkets and other food shops have benefited as British people eat at home more. Online sales have boomed, and household goods stores have seen strong demand.

Other areas have suffered, with clothing and footwear sales still 25 per cent down on a year ago.

Companies such as Marks & Spencer, Boots, John Lewis, Dixons Carphone and WH Smith have announced plans for thousands of job cuts.

Economists fear the broad retail recovery could prove temporary.

"July's retail sales likely will represent this year's peak," said Samuel Tombs of consultancy Pantheon Macroeconomics.

Restaurants and bars began to reopen in July, giving people more options for their spending.

Furthermore, unemployment is forecast to rise sharply once a government job support scheme stops at the end of October.

Emergency state spending and a shortfall in tax revenue look set to increase borrowing this year to a record £322 billion, the government's budget forecasters say.

Friday's figures showed borrowing between April and July hit £150.5 billion, almost seven times higher than in the same period in 2019.

Borrowing in July alone was the lowest since the start of the pandemic at £26.7 billion. July is a month when tax receipts typically boost the public finances.

Chancellor Rishi Sunak indicated that some taxes will need to rise over the medium term.

"This crisis has put the public finances under significant strain as we have seen a hit to our economy and taken action to support millions of jobs, businesses and livelihoods," he said.

"Without that support, things would have been far worse."

Sunak added that the government was "taking action now to support the growth and jobs which pay for our public services".

"Today's figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions," he said.