UK retail sales fell more than expected during rainy spell

UK retail sales fell more than expected during rainy spell

UK retail sales fell at the fastest pace in 2024 as consumers delayed spending due to rainy weather, highlighting a threat to the economy’s fragile recovery.

The volume of goods sold in stores and online plunged 2.3 per cent in April after a downwardly revised 0.2 per cent decline the month before, the Office for National Statistics said on May 24. That was much sharper than the 0.5 per cent drop economists had expected. It was also the worst reading since December, when the UK economy had dipped into recession.

Prime Minister Rishi Sunak’s government is betting an improving economy will help close a 20-point gap with the Labour opposition in the general election set for July 4. Official data from retailers underscored a continuing cost-of-living squeeze, with shoppers paying more to buy a smaller basket of goods after the worst inflation in four decades.

A separate report from the market research firm GfK showed consumer confidence perked up in May, but an index tracking the willingness of households to splash out on big-ticket items declined 1 point to minus 26. “The cost-of-living crisis is still a day-to-day reality for all of us,” said GfK client strategy director Joe Staton.

Rain has been a constant feature of UK economic releases in the past year holding back consumer spending. It was even cited as a factor in last year’s recession, when of the wettest October since 1836 was a drag on construction, retail, pubs and tourism.

“Gloomy, wet weather combined with the cost of living squeeze dampened spending” held back sales in recent months, said Ms Kris Hamer, director of insight at the British Retail Consortium. She added that consumers were more reluctant to spend on big ticket items, while poor weather hurt clothing and footwear sales.

The data did little to shift betting on interest rate reductions, which traders have pared back in recent days after a stronger-than-expected inflation reading. Economists also think the BOE is less likely to start a cycle of rate cuts during the election campaign, all but ruling out a move in June.

The pound fell to a one-week low at US$1.2676 after the data. The currency is still the best performer in the Group-of-10 except for the dollar in 2024, and has been boosted in the past days by expectations the BOE will take longer to start cutting interest rates.

Clothing, sports equipment, games and furniture sales did poorly as poor weather reduced footfall in stores, the ONS said. Car fuel sales volumes fell the most since October 2021. Total retail sales fell 2.7 per cent from a year ago in April, worse than the 0.4 per cent gain the month before.

The ONS said it’s confident in the seasonal adjustment it made to reflect the early timing of the Easter holiday this year at the end of March.

“Some retailers have been able to weather the storm better than others,” said RSM UK head of retail Jacqui Baker. “Marks & Spencer for example, showed strong growth in food, clothing and home sales in its latest results. Its success story shows it’s possible to turn things around.”

The British Retail Consortium earlier this month warned that April was a bleak month after gloomy weather dissuaded consumers from buying summer clothing or garden furniture.

The Met Office said the month continued “unsettled, wet and dull” weather and brought heavy rain to Scotland, Wales and parts of western England. Heavy gales accompanied Storm Kathleen at the start of the month.

“As rainfall returns to more seasonal norms the high street should see less disruption,” said Pantheon Macroeconomics chief UK Rob Wood. “Real income growth continues improving as inflation falls.”

Consumer confidence improved for a second consecutive month, thanks to a drop in inflation that’s loosening pressure on household budgets.

GfK its sentiment tracker climbed two percentage points to minus 17 in May. That’s stronger than the minus 18 expected by economists surveyed by Bloomberg and well above levels a year earlier when the cost-living-crisis was still biting hard.

GfK’s measures of personal financial prospects, savings and the general economic outlook all posted gains.

“The prospect of interest rates starting to be cut this summer and the boost to real household disposable income from falling inflation implies confidence will climb further and the recovery in consumer spending will continue throughout this year,” said Ms Ashley Webb at Capital Economics. BLOOMBERG

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