RTTNews - UK retail sales in July registered its biggest annual increase since May 2008 reinforcing the perception that recession is slowly leaving the economy. At the same time, government borrowing was the largest on record for July.

Retail sales rose 3.3% in July from a year earlier, which was the biggest increase since May 2008, the Office for National Statistics reported Thursday. July's increase was larger than the expected growth of 2.7%.

Predominantly food store sales rose 2% annually in July and non-food store sales grew 3.4%. Clothing and footwear sales increased 10.3%, while sales volume for household goods stores dropped 1.3% in July.

On a monthly basis, retail sales volume grew 0.4% in July, in line with expectations, but slower than June's revised 1.3% increase.

Further, the ONS report showed that the seasonally adjusted value of retail sales increased 2.6% on a yearly basis in July. Meanwhile, the estimated total value of sales on an unadjusted basis was GBP 21.9 billion in July. The average weekly value of sales was GBP 5.5 billion.

In a separate communique, the ONS said, the public sector net borrowing was GBP 8 billion, which was GBP 13.2 billion higher net borrowing than in July 2008. The deficit was the first for July in 13 years and also the biggest for the month since records began in 1993. There was a surplus of GBP 5.2 billion in public sector finances in the same month last year.

Commenting on the latest data, Chief Economist at the British Chambers of Commerce, David Kern said improvement in retail sales confirms the assessment that the recession is ending.

The public sector deficit indicates the huge scale of adjustment that the nation is facing over the next few years. The government would find it difficult to tighten spending amid weak economic situation and soaring unemployment. A clear medium-term plan should be designed to illustrate how the public finances will be returned to health.

Earlier, the Fitch Ratings affirmed U.K.'s long-term foreign and local currency Issuer Default Ratings at 'AAA'. But, the rating agency warned that the nation faces one of the most serious post-crisis fiscal adjustment challenges among 'AAA' governments. The agency said general government gross debt is estimated to increase to 80% of GDP by the end of 2010, up from just 44% at end 2007.

Elsewhere, the Council of Mortgage Lenders reported that gross mortgage lending grew 26% to GBP 16 billion in July. This was an evidence of a modest improvement in the market over the summer after a weak winter.

CML economist Paul Samter said, We expect improved sentiment to support the market, but a further significant pick-up is unlikely with so many obstacles in place. As a result, we anticipate some seasonal slowing in lending volumes and housing transactions over the latter part of the year and the picture of a slow but more stable market to emerge.

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