UK Retail Sales
As the weather improved at the end of July and London 2012 started UK retail sales got a small boost (Reuters)

UK retail sales were up 0.1 percent in July on a like-for-like basis compared with the year before, according to research by an industry group, as rapidly falling inflation fails to lure consumers back to the high street at the start of the third quarter.

Warm weather in the final week of July and the impending start to the London 2012 Olympic Games helped shift food and drink products of the shelves, reported the British Retail Consortium's (BRC) Retail Sales Monitor July 2012. Total retail sales growing by 2 percent on the year.

"July was clearly not a golden month for retail," Stephen Robertson, BRC director general, said.

"Like-for-like sales were virtually flat compared with a year ago and total growth of two per cent was still behind inflation as consumers, dealing with squeezed budgets, prioritised their spending on essentials."

Clothing sales were up on the previous year, driven by clearance discounts on summer lines, though new autumn/winter wear hitting the rails helped perk up consumers' interest.

The start of the school summer holidays boosted the sales of children's clothes, showing "robust growth".

Cool weather hurt outdoor DIY and gardening sales, while weakness in the housing market held down furniture and flooring.

A consumer-led bounce-back had been touted for the third quarter, after official data from the three months to June revealed a sharp -0.7 percent contraction of the British economy.

Falling inflation, which dropped to 2.4 percent in June, is easing the grip on household finances, as disposable incomes also rise, though still not yet offsetting the rising cost of living.

London 2012 was also expected to boost consumer morale, and coupled with the additional tourism there were high hopes that struggling retailers would get some relief from the difficult trading environment.

"Although these figures only include the very start of the Olympic Games it is probably fair to say that the much hoped for 'summer boom' is unlikely to materialise," Neil Saunders, managing director of retail analsysts Conlumino, said.

"Part of this is down to the poor weather which continues to hamper fashion sales and to erode footfall on high streets.

"However much of it is also attributable to the current consumer psyche which remains cautious and is engendering a reluctance to spend.

"In this regard, it was probably always unrealistic that any event could bring about a prolonged upward shift in retail growth."

Analysis of the official inflation data by IBTimes UK shows that while the headline rate is falling, the cost of essential items such as food, rent and travel, are actually rising.

Private industry data from the three main sectors of the UK economy - manufacturing, construction and service - shows worrying signs that the recession may extend into another quarter, despite the low comparative base in the previous three months.

Construction sector output returned to marginal growth in July, though activity did not pick up as much as anticipated from its two and a half year low in June.

Manufacturing output continued its contraction as sector activity sunk to a 38-month low.

Service sector growth slowed to a 19-month low, which will concern the UK Treasury as it accounts for around three quarters of overall GDP.

Greggs posts first half profit fall

Amid the retail gloom Greggs, the popular fast food outlet known for its hot savoury pastries, posted a 4.5 percent drop in first half profits after the second quarter wash-out saw record rainfall.

Greggs made a pre-tax profit of £16.5m in the first six months of 2012, down from the previous year's £17.3m in the same period.

"The market remained challenging and was particularly impacted by the record levels of rainfall in the second quarter with UK high street footfall down over 7 percent," said Greggs in a statement.

Total sales were up 4.5 percent to £350m in the first half, though sales in stores open for more than a year were down 2.3 percent.

Greggs said its second half would be challenging, but that margins should be in line with the latter six months of 2011.