Alarm bells as retail sales suffer largest fall in 18 months
UK high streets suffered from post-Easter fatigue among shoppers as official data showed retail sales dropped by 2.7 per cent in May.
The Office for National Statistics said a fall in sales in May represented the largest month-on-month drop since December 2023.
A Bloomberg poll of economists expected retail sales to drop by 0.5 per cent.
Brits felt the pinch of Chancellor Reeves’ tax hikes as sales at food stores fell by five per cent, the biggest percentage drop of any retail sector.
Fewer household goods and clothes were sold, which fell by 2.5 per cent and 1.8 per cent respectively.
Online retail sales also fell for the second consecutive month, with clothes and footwear even less popular, with a 3.1 per cent decrease.
The latest set of results will concern major retailers, given fears on how higher employers’ national insurance contributions (NICs) will affect prices in the coming months, while vast changes to labour law in the Employment Rights Bill are likely to pile extra costs on high street shops, deterring shoppers from buying more goods.
The British Retail Consortium’s director of insight, Kris Hamer, said the weakness in consumer demand came at a “particularly bad time” given retailers were still wrestling with extra costs which kicked in during April.
“Some non-food categories such as fashion and footwear had a particularly poor month, and beauty sales also continued to come down after a consistently strong period of growth last year,” Hamer said.
“The future of business rates reforms is still unclear, but it is vital that it does not result in any shop paying more.
“Otherwise, many retailers could be forced to shut down stores, which will impact jobs and local communities, and ultimately the UK’s economic growth.”
Retail sales drop
Capital Economics chief UK economist Paul Dales said the latest figures were representative of a more concerning trend in the UK economy.
“The sharp 2.7 per cent month on month drop back in retail sales volumes in May adds to other evidence that the burst of economic growth in the first quarter is over,” Dales said, pointing to GDP growth of 0.7 per cent in the first three months of the year.
“Even if sales were flat in June, they would decline by 0.3 per cent in the second quarter as a whole after the 1.6% quarter-on-quarter increase in the first quarter.
“What’s more, the recent news on non-retail consumer activity has been patchy. Our forecast is that the 0.2 per cent quarterly rise in real consumer spending in the first three months of the year will be followed by a 0.4 per cent quarterly gain, but that now looks a little more doubtful.”