Retail Sales Surge in May After April Washout

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Retail sales surged in May, recording a significant recovery from April’s downturn, which was caused by unusually wet weather.

According to the Office for National Statistics, sales volumes increased by 2.9% in May, surpassing City analysts’ expectations of a 1.5% rise. This follows an upwardly revised 1.8% contraction in April.

The boost in sales was largely driven by non-food transactions, which jumped by 3.5%. Clothing sales, in particular, saw a substantial month-on-month increase of 5.4% as Britons updated their wardrobes in response to the better weather.

Analysts attributed the rise in retail sales to the near-10% increase in the minimum wage in April and the rapidly rising average pay over the past year. This financial uplift has likely encouraged higher consumer spending.

Separate data indicates that consumer confidence has climbed to its highest level in nearly three years, suggesting a continued rise in consumption in the coming months. April’s heavy rainfall, which was 60% above average, had deterred shoppers, but May brought the hottest temperatures on record since at least 1884, spurring household spending. The warm weather in June and the start of the European men’s football championship are expected to further boost retail activity.

Tomasz Wieladek, chief European economist at T Rowe Price, commented, “The large rise in the minimum wage and disposable income led households to significantly raise their retail purchases. Improving consumer confidence suggests that these trends will continue. Retail sales will remain strong going forward. The UK economy, therefore, will likely continue to experience a stronger-than-expected consumer recovery this year.”

The rise in retail sales indicates that economic growth is gaining momentum, following a 0.6% GDP increase in the first quarter. Prime Minister Rishi Sunak has emphasised the economy’s regained strength during his general election campaign.

Andrew Wishart, senior UK economist at Capital Economics, noted, “The retail sales data for May showed tentative signs that strengthening real income growth, now that inflation is back at target, is feeding through to stronger spending.”

Household consumption has been weak due to high interest rates and rising prices. Although inflation has now fallen back to the UK’s official 2% target for the first time since July 2021, the rapid price increases have left a lasting impact on living standards. The Resolution Foundation, an economics think tank, highlighted that Britain has experienced 11 years’ worth of “normal” inflation in just 36 months.

In response to the highest rate of price growth in over 40 years, the Bank of England raised interest rates to 5.25%, the highest level in 16 years. While the central bank held the base rate steady for the seventh consecutive time this week, it suggested that borrowing costs could decrease in August if economic data continues to improve.

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Retail Sales Surge in May After April Washout