Retail sales surge past expectations in latest signs of UK economic turnaround
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The clearest signs yet that the UK’s economy has turned a corner emerged today as a flurry of fresh data pointed to robust consumer demand and renewed optimism over growth prospects.
UK retail sales for May surged past market expectations, rising 2.9% month on month and coming in well ahead of the consensus of 1.8%, while consumer confidence rose for the third consecutive month to the highest in two and a half years.
The rosy figures add to Wednesday’s news that inflation had fallen to the Bank of England’s 2% target for the first time in nearly three years and are in stark contrast to gloomy April numbers, with poor weather helping retail sales sink 2.3%, well worse than analysts had predicted.
Erin Brookes, European Retail and Consumer Lead at Alvarez & Marsal, said: “After retail sales took a tumble last month, we’re starting to see substantial growth again as consumers pick up spending.
“As we move into summer, the industry is hoping for a sustained rebound. Landmark summer events like the Euro 2024 football tournament and Taylor Swift's Eras tour arriving in the UK are anticipated to further stimulate consumer spending.”
Textile, clothing and footwear was the strongest performing category, up 5.4% on the previous month, the data showed, while household goods stores rose 3.5%. Sales at food stores rose more slowly, up 1.2%, in signs of cooling food inflation. Overall sales volumes rose 1.3% in the year to May.
The data will be regarded as a welcomed boost to PM Rishi Sunak as he seeks to defend his government’s record on the economy following the disastrous mini-budget introduced by his predecessor Liz Truss in 2022, which rocked financial markets. Though the turnaround is likely too late to reverse his political fortunes ahead of next month’s general election.
It is also overshadowed by ballooning government borrowing as figures released today showed the UK’s public debt rose to its highest level since 1961, with net borrowing hitting £15 billion for the month of May, an increase of £0.8 billion according to the Office for National Statistics. That was £0.6 billion below the estimates of the Office for Budget Responsibility, but nonetheless underscored the increasingly constricted fiscal wiggle room a future government will have after the election.
Analysts at Investec said: “Under current spending plans by both the Conservatives and Labour, non-protected departments are set to face real-term cuts to budgets.
“With no details yet to be released as to where such cuts would come from, we expect whoever is in government to face difficult decisions. The back of the sofa is unlikely to be deep enough to find the extra pennies needed to prevent such a squeeze.”
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