Retail sales rise

Better-than-expected retail sales figures have helped to raise hopes that the UK's recession may not be as deep as initially thought.

The Office for National Statistics said sales volumes in July rose by 0.3%, and were up 2.8% from a year earlier.

It also revised June's monthly sales increase up to 0.8% from 0.1%.

Analysts now believe that initial estimates that the economy shrank by 0.7% in the April-to-June quarter are overly pessimistic.

Stronger rises in factory output and the construction sector, together with continued falls in unemployment, could mean national income as measured by gross domestic product (GDP) is not shrinking as quickly as first estimated.

The ONS figures showed that the increase in retail sales last month was driven by fuel sales, which rose 2.6%, as supermarkets tempted motorists with promotions.

Excluding fuel, sales were unchanged, with stores continuing to cut prices to attract shoppers. However, this outcome was still better than analysts had forecast.

Food sales rose 0.4%, while sales of clothing and footwear fell 1.8%.