Warmer weather and falling UK inflation boost retail sales

In-store and online spending rebounded strongly last month as better weather, falling inflation and rising consumer confidence boosted spending.

The monthly update from the Office for National Statistics showed that the volume of retail sales increased by 2.9% in May, following a weather-affected fall of 1.8% in April.

The ONS said most retailers had a better month in May, with notable increases in the clothing and footwear and home goods sectors. Clothing sales rose 5.4% as retailers managed to move summer stock.

Kathleen Brooks, research director at XTB, said the strength of clothing sales may have been affected by consecutive events. “Could it be the Taylor Swift effect, with people – including me – flocking to new clothes ahead of her Eras tour, the UK leg of which will add £1bn to the UK economy United?”

The official data followed the release of GfK’s latest consumer confidence snapshot showing sentiment standing at its highest level in two-and-a-half years.

Over the three months to May – a better guide to the underlying trend in spending – retail sales rose 1%. However, they remained 0.5% below the level immediately before the start of the Covid pandemic in February 2020.

Retail sales account for less than half of total consumer spending and exclude categories such as car sales, eating out and hotel stays.

S&P’s broadest monthly health check on the economy found the pace of growth eased in June after Rishi Sunak called snap elections.

The S&P purchasing managers’ index showed activity growing at the slowest pace in seven months, with weakness concentrated in the services sector.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “June’s flash PMI survey data signals a slowdown in the pace of economic growth, showing that GDP is now growing at a sluggish quarterly rate of just over more than 0.1%.

“The slowdown partly reflects uncertainty around the business environment ahead of the general election, with many firms seeing a pause in decision-making pending clarity on various policies.”

The composite manufacturing PMI index fell from 53.0 in May to 51.7 in June. A reading above 50 indicates that the economy is expanding rather than contracting.

Rob Wood, chief UK economist at Pantheon Macro, said the fall in PMI was an election-related blip. “Retail sales rebounded strongly from the April shock and will continue to gain ground as rising real consumer wages spur higher spending.

“The steady rain did not stop in May, but rainfall was ‘only’ 20% above average, compared to 68% above in April. May was also the warmest since 1884.

Andrew Wishart, a senior UK economist at Capital Economics, said the fact that online sales rose 5.9% month-on-month suggested there was more to May’s rise than just better weather drawing shoppers to the main roads.

“Overall, retail sales data for May showed preliminary signs that strengthening real income growth now inflation is back on target is feeding into stronger spending,” Wishart said.

Separate ONS figures highlighted the size of the fiscal challenge facing the incoming government, with the gap between public spending and tax revenue standing at £15bn last month – £800m higher than a year earlier and the third highest for a May since modern records began in 1993

Spending last month was £2.3bn higher than in May 2023, while a £1.5bn rise in tax receipts was partly offset by weaker national insurance contributions following cuts in the Autumn Statement and Budget.

May’s borrowing figure of £15bn was slightly below the £15.7bn forecast by the Office for Budget Responsibility, the government spending watchdog. April borrowing was revised up by £2.1bn to £18.4bn.