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LONDON -(Dow Jones)- U.K. retail stocks were slightly higher Thursday after surprisingly strong U.K. retail sales data boosted sentiment on a sector that has been under pressure for some months.
U.K. retail sales posted their biggest monthly gain for 22 years in May, the Office for National Statistics said Thursday. Sales rose 3.5% on the month and 8.1% on the year, compared with expectations of a monthly slide of 0.1% and a year-on-year gain of 4.1%.
While the figures were greeted with bemusement by some analysts - due to low consumer confidence and a slew of negative trading updates from retailers in recent months - retail stocks reacted largely positively.
By 1000 GMT in London, shares in (TSCDY) - the U.K.'s largest retailer - were up 1.9% to 388 pence, with fellow supermarket ( JSAIY) 1.6% higher at 330 pence. William Morrison Supermarkets PLC's (LSE:MRW) (MRW.LN) share price was 1% lower, though, at 269 pence.
The ONS said that the high retail sales levels were led by food stores - which had their largest monthly gain since January 1986. Sales of clothing and footwear also rose sharply, it said.
Shares in the country's largest clothing retailer by sales Marks & Spencer Group PLC (LSE:MKS) (MKSY) gained 1.8% to 347 pence, with shares in (ASBFY) - owner of the Primark clothing chain - gaining 1% to 804 pence. Next shares meanwhile recovered some of their earlier falls to trade up 0.3% at 1001 pence.
Other large retailers to benefit from the strong figures were Home Retail Group PLC (LSE:HOME) (HOME.LN), up 0.4% at 212 pence and Debenhams PLC (LSE:DEB) (DEB.LN) - up 0.5% at 49 pence.
James Knightley, economist at ING in London described the retail sales figures as "very odd."
"We must all be very fat after spending an extra 3.3% in real terms on food last month," he said. "Because of the extra weight we have gained we have had to throw out all of our clothes and spend an extra 9.2% in real terms on clothing and footwear."
Some retailers had claimed that May was a better month for consumer spending after a wet March and April hit sales during those months. But recent store sales figures hadn't suggested such a surge in overall retail spending.
Gavin George, head of retail at Ernst & Young said the hot weather in May had contributed the impressive sales volumes. "However, in spite of the month's vastly improved performance, the underlying retail sector trend remains weak," he said. "We expect that the trend of low or negative sales growth will resume in the coming months."
"With food, fuel and energy prices increasing significantly, wages not rising in line with inflation - at least for the time being - and house price falls gathering pace, the already debt-laden consumer is being squeezed from all sides," George said.
George expects trading to become tougher in the second half of the year, with resulting discounts pressuring retail margins. "We anticipate that the high level of retailer profit warnings and administrations will continue."
-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@ dowjones.com
(Jeannie Clarke contributed to this article.)
(END) Dow Jones Newswires 06-19-08 0622 Copyright (c) 2008 Dow Jones & Company, Inc.
