LONDON (Reuters) -British retailers reported their strongest sales in August in nine months, confounding forecasts for a fall as the cost-of-living squeeze hits households, according to figures from the Confederation of British Industry on Thursday.
The CBI's July retail sales balance for August jumped to +37 from -4 in July. Economists polled by Reuters had mostly expected a fall to -7.
Samuel Tombs, an economist with consultancy Pantheon Macroeconomics, said the jump in sales in August was probably the result of emergency cost-of-living grants paid to people on welfare in late July, part of a package of support announced by former finance minister Rishi Sunak in May.
"With low-income households, who had to cut back severely in Q2, receiving the most support from the government, it is unsurprising that retail sales have benefited immediately," Tombs said in a note to clients.
Consumer price inflation hit a 40-year high of 10.1% in July and is expected to continue climbing - possibly to 18%, according to analysts at Citi - as energy prices surge on the back of Russia's invasion of Ukraine.
The two contenders to become Britain's next prime minister have both promised more help for households. Foreign minister Liz Truss says her preference is to cut taxes while Sunak says he wants to focus on targeted support for low-income households.
The CBI survey showed the extent of inflation pressure still building in Britain's economy.
A quarterly measure of average selling price inflation sped up to its fastest pace since 1985 at +87 from +77 in May.
Prices were expected to rise at a similarly fast pace in September.
Martin Sartorius, principal economist at the CBI, said that despite the growth in sales in August, companies were the most downbeat about business in the next three months since Britain's first COVID-19 lockdown in 2020.
"This gloom is reflected in retailers' investment intentions, which continue to be resolutely negative," he said.
The CBI survey was based on responses from 60 retailers between July 27 and Aug. 12.