Friday, September 22, 2023
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UK shoppers spend again despite inflation squeeze

By William Schomberg

LONDON (Reuters) – British retail sales unexpectedly rose in May, helped by extra banks marking King Charles’ coronation The holidays, however, also suggest that most consumers are dealing with high inflation squeezing their spending power.

Retail sales rose 0.3% on month, a day after the Bank of England raised interest rates to the highest level since 2008, defying a drop forecast in a Reuters poll 0.2%. The increase last month followed a 0.5% gain in April.

Sterling edged higher against the dollar and euro after the ONS data.

Soaring UK inflation hits household spending power. Price growth held at 8.7% in May, contrary to forecasts of a slowing economy, according to data released earlier this week.

But retail sales figures on Friday showed that, at least for now, British consumers are weathering the cost of living storm.

“These numbers are much better than we expected,” said Ruth Gregory, UK deputy chief economist at Capital Economics.

“However, we still believe that the drag on activity from higher interest rates will eventually tip the economy into recession, causing real consumer spending to decline by 0.5% peak-to-trough.”

Samuel Tombs of consultancy Pantheon Macroeconomics said a consumer-led recession was likely to be avoided as falling costly energy bills more than offset the hit to the broader economy from higher borrowing costs for mortgage holders.

UK consumer confidence rose for the fifth straight month in June to its highest level since January as households became more optimistic about their finances, a separate survey on Friday showed and economy.

Heather Bovill, senior statistician at the ONS, said: “Retail sales rose slightly in May, with outdoor and summer clothing at online stores Sales were especially good.”

“Fuel sales also returned to growth in May after falling in April,” she said, adding that good weather boosted sales at garden centers, DIY stores and clothing stores .

However, as supermarket prices continued to rise and many people ordered takeaways and drinks during two of the three bank holidays in the five-month ONS reporting period, food sales It was down 0.5% from April.

The statistics agency said the one-off holiday to celebrate the coronation of kings was not included in seasonal adjustments, meaning it helped boost sales.

Retail sales fell 2.1% YoY in May. Sales fell 2.6 percent from a year earlier, according to a Reuters poll of economists.

The extent of the toll inflation is taking on consumers was revealed by ONS data, which showed the value of spending fell by 2% in May shortly before the coronavirus pandemic hit the UK. The month of 2008 was % higher, but volume was down 0.8%.

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