(Bloomberg) -- UK retail sales rose unexpectedly on demand for consumer tech including the new iPhone, a welcome boost for the new government after it was accused of hurting sentiment with warnings of tax rises in this month’s budget.
The volume of goods sold in stores and online increased 0.3%, rising for a third consecutive month, the Office for National Statistics said Friday. That was slower than the 1% increase in the previous month, but considerably better than the 0.4% decline predicted by economists surveyed by Bloomberg.
Though the effect is likely to be limited, the surprise figures at least mean that Prime Minister Keir Starmer’s government will avoid another round of criticism about negative data in the run up to the Oct. 30 budget. Chancellor of the Exchequer Rachel Reeves’ warnings about “tough measures” — expected to be tax rises and spending cuts — needed to fix the public finances were blamed for consumer confidence slumping at the fastest pace in 2 1/2 years last month.
The pound extended gains and was headed for its best weekly jump against the euro this year. UK bonds dropped, underperforming German peers, and money markets held on to bets that the Bank of England will cut rates by a quarter point in November, with a 60% chance of another reduction in December.
September was a big month for technology retailers, with Apple Inc.’s newest iPhone 16 going on sale. Google’s Pixel 9 lineup, which like the iPhone leans into the use of artificial intelligence, was launched in August.
“The telecommunications and computer sectors were the key contributors to the growth in non-food sales,” said Greg Zakowicz, senior e-commerce expert at Omnisend. The new iPhone, Apple Watch and AirPods were “spurred a significant uptick in consumer demand,” he said.
Retail sales volumes posted an annual rise of 3.9%, the strongest since February 2022. They’re now at their highest level in more than two years, and only 0.2% below pre-pandemic levels.
But while consumers bought more tech and clothing, this was partly offset by a 2.4% decline in supermarket sales, the largest monthly fall for food stores this year. That was in part due to poor weather keeping people away from shops, according to the ONS.
The UK saw above average rainfall last month, with some regions recording their wettest September on record, according to Met Office data. Sunshine duration and temperatures also dropped below their normal levels.
What Bloomberg Economics Says...
“Retail sales grew in September despite the unseasonably wet weather and some consumer caution ahead of the Autumn budget. That fits in with the bigger picture of positive real wage growth bolstering spending in the quarters ahead.”
—UK economist Niraj Shah. Read the full UKREACT on the Terminal.
The ONS data comes after separate figures from the British Retail Consortium showed retail sales grew at the strongest rate in six months in September. Consumers splashed on autumn clothing and computers ahead of the new school year, while holding back on big-ticket items like furniture, the BRC said.
Households are still cautious with their spending. Consumers are cutting back on luxury food items and delaying big ticket purchases to save money in the run-up to Christmas, according to Kris Hamer, director of insight at the BRC.
“The back-to-school rush carried retail sales momentum into September,” said Phil Monkhouse, UK country manager at financial services firm Ebury. Still, he added that “consumer confidence remains shaky ahead of the ‘painful’ Autumn budget later this month, with rumors swirling on significant policy and tax changes, stoking unease among shoppers.”
--With assistance from Aline Oyamada.
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