UK retail sales bounced back in July after summer discounts and the Euros football competition unleashed spending at department stores and sports shops.

The volume of goods sold in stores and online rose 0.5% in July after a revised drop of 0.9% the month before, the Office for National Statistics said Friday (16 August). Economists had expected a 0.6% gain, but the decline in June was more shallow than the 1.2% previously reported.

The figures suggest a stronger start to the third quarter after spending in stores held back broader economic output in June. It also may indicate optimism that the worst of a cost-of-living squeeze is behind, with inflation back near the Bank of England’s 2% target and companies hiring at the strongest pace since November.

“The UK economy appears to be chugging along, with little sign that consumers are significantly cutting back,” said Charlie Huggins, Manager of the quality shares portfolio at Wealth Club, an investment adviser. “With inflation moderating, paving the way for further interest rate cuts, retailers can look ahead to the rest of the year with a degree of optimism.”

Investors expect the Bank of England will cut interest rates at least once more this year after easing them on Aug. 1 from the highest level in 16 years. Double-digit inflation that peaked in 2022 along with high borrowing costs drained money from the pockets of consumers, leaving people paying more to buy fewer goods. Retail sales volumes are still below where they were before the pandemic started in early 2020.

“Rising real incomes, as inflation falls, should mean consumer spending growth accelerates over the rest of this year,” said Alex Kerr at Capital Economics.

The pound held gains after the data, up 0.2% to $1.2880. The currency is headed for its first weekly gain in over a month.

Prime Minister Keir Starmer has put boosting the economy at the heart of his Labour Party’s agenda after winning the July 4 election. Retailers have said they’re concerned about weakness in spending patterns.

Excluding fuel, retail sales rose 0.7%, which was stronger than the 0.6% rate economists had expected. June’s figures were hit by unusually cool weather and uncertainty about the election campaign, which culminated on July 4 with a victory for the Labour Party.

The broader trend for retailers is looking more favorable. Sales rose 1.1% for the three months to July when compared with the quarter finishing in April. They’re up 0.8% from the same period last year. The proportion of sales made online also edged up to 27.8% from 27.4% the month before.

“There is little doubt that the UK economy is moving along nicely with virtually all indicators pointing in the right direction, with sales volumes now virtually back to pre-Covid pandemic levels,” said Neil Birrell, chief investment officer at Premier Miton Investors, a fund manager.

There was anecdotal evidence that England’s progress to the final of the Euro 2024 tournament boosted spending on football shirts and electronics, such as TVs, as well as alcoholic drinks, according to the ONS. It also credited warmer weather in the second half of the month, which brought people out shopping, and discounting in bigger stores.

Temperatures increased in the third week of July, reaching around 30 degrees Celsius in some areas and the upper 20s across the prosperous southeast of England, according to the Met Office.

“Following the gloomy start to summer spending, retailers welcomed the warmer July weather which gave sales growth a boost, particularly in areas such as cosmetics, clothing, footwear, and books as consumers prepared for their summer holidays,” said Kris Hamer, director of insight at the British Retail Consortium. “Computing also sold well as people upgraded their home office tech purchases.”

The official figures were stronger than surveys had indicated. The CBI had said retailers reported disappointing sales in July and that volumes are likely to stay below seasonal norms in August. The BRC said it found a 0.5% increase in sales last month, slower than the 1.5% rate a year ago but above the three-month average.

“Retailers basked in increased footfall as parents looked for ways to entertain their kids,” said Jon Boland, general manager of Clover in the UK, which sells payment systems to shops. “Discretionary spending has increased thanks to the school summer holidays.”