UK retail sales experienced their sharpest decline in over a year in May, primarily driven by a "dismal" performance from supermarkets. Consumers cut back on non-essential items like alcohol and tobacco, reflecting ongoing cost-of-living pressures. This downturn follows a brief surge in April, highlighting the fragility of consumer spending power amidst a challenging economic climate.
Retail Sales Plummet
Retail sales volumes in the UK fell by 2.7% in May, marking the largest monthly decrease since December 2023. This significant drop was largely attributed to a poor showing from food retailers, particularly supermarkets, as households reduced purchases of alcohol and tobacco. Additionally, clothing and household goods stores reported "slow trading," and demand for DIY goods also decreased as consumers completed home projects earlier in the year.
Key Takeaways
- May saw the fastest decline in retail sales in over a year, primarily due to a "dismal" month for supermarkets.
- Sales volumes dropped 2.7% in May, the biggest monthly fall since December 2023.
- Consumers cut back on alcohol and tobacco, and demand for DIY goods also fell.
- Government borrowing hit its second-highest May level since 1993, reaching £17.7bn.
- The Bank of England held interest rates at 4.25%, noting "weak" underlying economic growth.
- Inflation remained at 3.4% in May, with food prices continuing to rise.
Economic Headwinds and Borrowing Concerns
Separate figures revealed that government borrowing reached £17.7 billion in May, the second-highest level for that month since records began in 1993. This increase of £0.7 billion from May last year was driven by a larger rise in spending, partly due to inflation-linked benefit uplifts, despite increased revenue from income tax and National Insurance contributions. The UK economy, which grew by 0.7% in the first three months of the year, contracted by 0.3% in April, further indicating a slowdown.
Consumer Caution and Inflationary Pressures
The ONS noted that retailers reported inflation was prompting consumers to cut back. This sentiment is reinforced by recent research indicating that the cost of living remains a primary concern for UK residents, with higher food prices being the most commonly cited reason for increased living costs. Jacqueline Windsor, head of retail at PwC UK, commented that the May decline, while not surprising after April’s strong performance, "does underline the fragility of consumers’ spending power and the retail sector in the current economic climate."
Political Reactions and Fiscal Outlook
Total government borrowing for the first two months of the financial year stands at £37.7 billion, less than the £40.7 billion forecast by the Office for Budget Responsibility. Chief Secretary to the Treasury, Darren Jones, stated the government has "stabilised the economy and the public finances." However, economists like Thomas Pugh of RSM UK suggest that despite the lower-than-forecast borrowing, the Chancellor may still need to announce "top-up tax increases after the summer" to meet fiscal rules, given an underperforming economy and higher borrowing costs.
