‘Dismal’ month for supermarkets pushes down retail sales
The latest data from the UK’s Office for National Statistics (ONS) has revealed that retail sales took a hit in May, with sales volumes dropping by 2.7%. This marks the largest monthly decline since December 2023, painting a gloomy picture for the retail sector.
According to the ONS, the poor performance in May was primarily driven by a slump in sales at food retailers, particularly supermarkets. Consumers were reported to be cutting back on purchases of alcohol and tobacco, leading to a decrease in overall sales. Additionally, clothing and household goods stores experienced sluggish trading during the month.
The decline in retail sales comes on the heels of a 1.3% increase in April, buoyed by favorable weather conditions. However, the ONS noted that demand for DIY goods also saw a decline in May, as consumers had already completed home projects earlier in the year due to good weather.
While sales volumes for the three months leading up to May still showed a 0.8% increase compared to the previous quarter, economists are viewing the latest data as a sign that the earlier surge in economic growth may be waning. The UK economy grew by 0.7% in the first quarter of the year but contracted by 0.3% in April, indicating a slowdown in growth.
Inflation remained steady at 3.4% in the year to May, with food prices seeing a continuous rise for the third consecutive month. Research by the ONS highlighted that rising cost-of-living pressures, particularly from higher food prices, are a significant concern for people in the UK.
The government’s borrowing also saw an increase, reaching £17.7bn in May, up £0.7bn from the previous year. While revenue from income tax and National Insurance contributions rose, increased spending, partly due to inflation-linked benefits, contributed to the rise in borrowing.
Looking ahead, economists are cautious about the outlook for the UK economy, with concerns about underperforming growth, higher borrowing costs, and potential tax increases. Chancellor Rachel Reeves may need to announce top-up tax increases in the coming months to meet spending and borrowing targets.
Overall, the latest data paints a challenging picture for the UK economy and the retail sector, highlighting the fragile state of consumer spending and the need for careful economic management in the months ahead.
