UK retail sales show sluggish growth

Sales volumes increased by 0.3 per cent in May, while many had predicted a contraction

May saw a slight growth in retail sales volumes, according to the ONS. PA

Retail sales volumes in the UK grew by 0.3 per cent in May, down from the 0.5 per cent growth they showed in April, according to the Office for National Statistics.

Sales volumes in May were 2.1 per cent lower when compared to the same month last year. In value terms, retail sales were 4.8 per cent higher on a yearly basis, because of the steep rise in inflation.

“The shift towards good weather has boosted volume – primarily through online purchases, kicking off shoppers’ summer clothing sprees and a need for outdoor equipment," said Samantha Phillips, partner at McKinsey and Company.

"The trend for fuel has also reversed versus April, likely due to falling prices and an increase in travel post-industrial action."

'Resilient consumption'

There was evidence of more spending on fast food and takeaways during May, around the time of the extra public holiday due to the coronation of King Charles III.

Consumer confidence figures, also released on Friday, were the highest in 17 months, showing that consumption is holding up impressively in the face of the cost of living crisis.

"But it is a concern for the Bank of England, as resilient consumption makes its job of bringing inflation back under control that much more difficult," said Stuart Cole, chief macro economist at Equiti Capital.

Coming at the end of a week of shattered expectations, economists had predicted a decline in retail sales volumes of 0.2 per cent.

On Wednesday the "stickiness" of inflation was further revealed as the ONS said it had remained at 8.7 per cent in May, the same as in April. Analysts had expected a drop to 8.4 per cent.

Yesterday, the Bank of England increased interest rates by 0.5 per cent, double the rate that was forecast just days before.

It paints a picture of an economy that still has inflation-causing demand within it, although the Bank of England is trying to combat this.

Consumer spending is currently supported by low unemployment, falling energy prices and the extension of government subsidies for energy bills.

"Indeed, the impact of yesterday’s 0.5 per cent interest rate rise will likely be blunted by the cuts in energy bills that are due to benefit consumers from July, providing an approximate 0.8% boost to real disposable incomes and outweighing the consumption drag from higher mortgage rate payments," Mr Cole said.

But with around a million households projected to come off fixed rate mortgages by the end of the year, a carefree summer holiday for the UK consumer is unlikely to carry on into the autumn.