EconomyBritish retail sales decline, intensifying fears of slowdown

British retail sales decline, intensifying fears of slowdown

British retail sales contracted in May as consumers tightened their belts amid a deepening of the cost of living crisis, fuelling concerns about a downturn in the UK economy.

The quantity of goods bought in Great Britain fell 0.5 per cent between April and May, reversing the expansion in the previous month, according to data published on Friday by the Office for National Statistics.

This was only marginally better than the 0.7 per cent fall forecast by economists polled by Reuters, but the May statistic was helped by the figures for April being revised strongly down.

However, shoppers spent 0.6 per cent more than in the previous month, even if the volume was lower, laying bare the impact of surging inflation on households’ finances.

May’s fall was “driven by a decline in food sales”, said Heather Bovill, ONS deputy director for surveys and economic indicators.

She added that feedback from supermarkets suggested that “customers were spending less on their food shop, because of the rising cost of living”. 

 Sales of household goods and purchases made at department stores also fell sharply. Bovill said that retailers in these areas reported a “consumer reluctance to spend due to affordability worries and higher prices.”

This comes as separate data by the research company GfK, also released on Friday, showed that UK consumer confidence fell in June to the lowest level since records began in 1974.

Lisa Hooker, industry leader for consumer markets at PwC, said that the platinum jubilee celebrations and the sunny weather “were unable to outweigh the wider drag of the cost of living crisis on retail sales”.

Consumers were being hit by the “triple whammy” of a national insurance tax rise, sharply rising food prices and the significant increase in the energy bill cap in April said Maxim Syn, of global financial services firm Ebury, with household budgets “squeezed from all directions.”

The 1.6 per cent contraction in food sales volumes in May follows a surge in annual food inflation to 8.6 per cent, separate official data showed earlier in the week. As a result, many customers are “buying down,” said Helen Dickinson, chief executive of the British Retail Consortium, particularly with food, choosing value range items where they might previously have bought premium goods.

The data increase the likelihood of an economic downturn, economists warned.

Thomas Pugh, of business advisory firm RSM UK, said that the flow of recent negative data pointed to an economic contraction in May, continuing the lack of growth seen since January. He expected the economy to contract 0.5 per cent in the second quarter.

George Lagarias, chief economist at the accountancy firm Mazars, said consumers cutting on spending would bring “the UK economy closer to a recession”.

However, markets still expect the Bank of England to raise interest rates in August as it faces the fastest pace of inflation in 30 years, adding further pressure to household finances.

Holiday shopping boosted clothing sales in May and workers returning to the office spent more on filling up their vehicles.

However, sales volumes fell by 1.3 per cent in the three months to May compared with the previous three months.

Retail sales volumes have fallen from their peak in the spring of last year as consumers return to spending in bars and restaurants, not included in the figures, instead of buying groceries.

Jamie Rackham, founder of the Facebook group of 194,000 small producers Not On Amazon said: “Everything is costing more to produce at the same time as people have less to spend.”

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