By David Milliken and Ana Nicolaci da Costa
LONDON (Reuters) - British retail sales rose in September at their fastest monthly pace in almost two years as shoppers with more cash in their pockets bought beers to toast the Rugby World Cup, the first held in Britain since 1999.
Retail sales volumes surged last month by 1.9 percent on the month and were up 6.5 percent from the year before, the biggest annual rise since November 2014, and may limit a forecast slowdown in overall economic growth.
Thursday's figures - which drew responses of "wow", "stonking" and "spectacular" from analysts - outstripped even the fizziest of forecasts and marked a break with disappointing data in the previous two months.
Sterling rose to a one-month high and British government bonds underperformed their German counterparts after the data.
"Falling in-store prices and promotions around the Rugby World Cup are likely to be the main factors why (retail volumes) increased in September at the fastest monthly rate seen since December 2013," ONS statistician Kate Davies said, highlighting beer sales.
Economists in a Reuters poll had expected retail sales to rise by 0.3 percent on the month and 4.8 percent on the year, after upbeat surveys from the British Retail Consortium and the Confederation of British Industry.
Consumers, a key engine of Britain's economic recovery, are benefiting from a pick-up in wages, falling prices for goods in stores and record-low interest rates that markets do not expect to rise before late next year.
For the third quarter, retail sales rose by 0.9 percent, up from 0.8 percent growth in the second quarter, and offering some hope that consumer spending supported Britain's economy as a whole over a period when export demand faltered.
Food and drink sales rose by 2.3 percent on the month, the biggest rise since April 2014. But the boost to spending from the four-yearly Rugby World Cup may fade in October, after England's early exit from the tournament.
Despite this, analysts expected the benign backdrop to continue to support retail sales into the end of the year.
"With strong fundamentals still in place, we are optimistic that the consumer recovery will maintain a strong pace over the rest of the year," Ruth Miller, UK economist at Capital Economics said.
The strong growth in sales volumes was supported by falling prices, with the measure of inflation used in the data showing store prices were down by 3.6 percent on the year, the joint-biggest fall since the series began in 1988.
British inflation unexpectedly edged back into negative territory last month, with consumer price inflation falling to an annual rate of -0.1 percent, to match April's all-time low.