UK shoppers boost spending again despite inflation's squeeze
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[June 23, 2023] By
William Schomberg
LONDON (Reuters) -British retail sales unexpectedly rose in May, boosted
by an extra bank holiday to mark the coronation of King Charles but also
suggesting most consumers were coping with high inflation's squeeze on
their spending power.
A day after the Bank of England escalated its battle against inflation
by raising interest rates to their highest since 2008, official data
showed retail sales volumes rose by a monthly 0.3%, defying a Reuters
poll forecast for a fall of 0.2%. Last month's increase followed a rise
of 0.5% in April.
Sterling edged up against the U.S. dollar and the euro after the data
was published by the Office for National Statistics.
The surge in Britain's inflation rate has hit household spending power.
The pace of price growth held at 8.7% in May according to data published
earlier this week, contrary to forecasts for a slowdown.
But Friday's retail sales figures showed that, at least for now, British
consumers were weathering the cost-of-living storm.
"The figures were far better than we had expected," Ruth Gregory, deputy
chief UK economist at Capital Economics, said.
"But our view is still that the growing drag on activity from higher
interest rates will eventually tip the economy into recession,
generating a 0.5% peak to trough fall in real consumer spending."
Samuel Tombs with consultancy Pantheon Macroeconomics said a
consumer-led downturn would probably be avoided as falls in expensive
energy bills more than offset the hit to the overall economy from higher
borrowing costs for mortgage-holders.
A separate survey published on Friday showed British consumer sentiment
rose in June for the fifth month in a row to its highest level since
January 2022 as households turned more optimistic about their finances
and the economy.
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People shop on Oxford Street in London,
Britain April 10, 2023. REUTERS/Anna Gordon/FILE PHOTO
"Retail sales grew a little in May, with online shops doing
particularly well selling outdoor goods and summer clothes, as the
sun began to shine," ONS senior statistician Heather Bovill said.
"May also saw a return to growth for fuel sales after a dip in
April," she said, adding the good weather boosted sales at garden
centres and DIY stores as well as clothing stores.
However, food sales fell by 0.5% from April as supermarket prices
continued to rise and many people ordered takeaways and drank out
more over the two of May's three bank holidays that fell within the
ONS's reporting period.
The statistics agency said the one-off holiday to celebrate the
king's coronation was not factored into its seasonal adjustments,
meaning it helped to boost the sales volumes reading.
Retail sales volumes in May were 2.1% lower than a year earlier. The
Reuters poll of economists had pointed to a fall of 2.6% in sales
volumes on an annual basis.
The extent of inflation's toll on consumers was laid bare in the ONS
figures which showed that spending in value terms in May was 17%
higher than in February 2020, shortly before the coronavirus
pandemic hit Britain, but volumes were down 0.8%.
(Reporting by William Schomberg, Editing by William James and
Catherine Evans)
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