Business

Weak sterling leads to sharp drop in UK retail sales

Retailers have been warning of difficult trading conditions in recent weeks

The combination of flagging consumer spending and prices rising faster than expected presents a challenge. Photograph: Getty Images

Thu Jun 15 2017 - 14:34

UK retail sales plunged in May for the second time in three months as rising inflation ate into the purchasing power of consumers.

The volume of goods sold in stores and online fell 1.2 per cent from April, more than the 0.8 per cent decline forecast in a Bloomberg survey. Sales excluding auto fuel dropped 1.6 per cent, the most this year.

The figures provide further evidence that the squeeze on households is now starting to hit home, with retailers from Topps Tiles to clothing chain Next warning of difficult trading conditions in recent weeks.

That augurs ill for a consumer-reliant economy, and adds to the problems facing prime minister Theresa May, who is heading toward Brexit talks with her Conservative Party stripped of its parliamentary majority following last week's election result.

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Except for fuel, every retail category saw sales fall last month, suggesting that rising prices triggered by the weak pound are forcing households to cut back on non-discretionary items.

Household goods dropped 5.7 per cent, clothing and footwear fell 0.1 per cent, and sales at department stores declined 0.8 per cent. Other stores, including sellers of computers and books, saw a 2.9 per cent decline. Food sales weakened by 0.9 per cent.

Real earnings

The report is clear of any distortions caused by the Easter holiday, which fell in April this year and in March in 2016. Annual sales growth slowed to 0.9 per cent from 4.2 per cent.

Real earnings are now falling at the fastest pace in almost three years as inflation races ahead of wage growth. Average store prices excluding auto fuel rose 2.8 per cent last month, the most since March 2012.

Sales are still on course to contribute to growth in the current quarter after they slumped in the first three months of 2017. They will increase unless June sees a fall of 3.3 per cent drop, a decline last seen in 2008. – Bloomberg

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