UK retail sales dive as consumers feel Brexit inflation pinch – The Guardian

UK retail sales dive as consumers feel Brexit inflation pinch – The Guardian

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Retail sales volumes dived by a worse-than-expected 1.2% in May, as rising prices depressed annual consumer spending growth to levels last seen in 2013.

Furniture sellers were among the worst hit as consumers diverted their spending to essential items and food, a trend reinforced by a profit warning from sofa specialist DFS.

The fall was deeper than the 0.8% month-on-month decline analysts expected, and means that retail sales were only 0.9% higher than a year ago – the weakest rise since April 2013.

Budget food retailers also appeared to weather the slowdown in better shape as consumer switched to own-label goods and away from expensive brands.

Warmer weather is understood to be behind a resilient performance by clothing stores and shoe shops, but the slowdown in both the volume of sales and the amount of spending by consumers will fuel worries that the UK economy is entering a period of sluggish GDP growth.

In April sales surged to an eight-month high, though this was seen as a blip in a longer-term trend for shoppers to tighten their belts.

The Office for National Statistics blamed the steep rise in the annual rate of inflation over the last year to 2.9% in May, up from just 0.3% in May 2016.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said: “May’s retail sales figures confirm that consumers are struggling to spend more now that real wages are falling at the fastest rate for three years.”

He said looking ahead, it was difficult to see the trend in retail sales improving soon.

“Retailers have not finished yet passing on higher import prices to consumers, wage growth looks set to remain depressed and banks are reporting that they intend to restrict the supply of unsecured credit,” he added.

“As a result, we expect quarter-on-quarter growth in households’ real spending to average just 0.2% in the remaining three quarters of 2017, ensuring that the overall economy continues to struggle.”

The ONS said average store prices increased by 2.8% tracking the overall inflation rate, illustrating the decision of most retailers to pass on at least some of the increased cost of imports to consumers.

In the wake of the EU referendum vote last year the pound plunged by almost a quarter, dramatically increasing the cost of imported goods. While shops have absorbed some of the extra cost, many have passed on some in the form of higher prices.

Keith Richardson, managing director retail sector at Lloyds Bank Commercial Banking, said hopes for a post-election bounce appear to have been dashed, with further political uncertainty potentially damaging consumer confidence.

“In reality, we can see that shoppers are actually tightening their belts, switching to supermarkets’ own-brand products, while the discounters are also enjoying renewed growth,” he said.

“They’re also prioritising their spending, with non-food sales suffering so that consumers can still afford to put a treat in the trolley when buying their groceries.

“But while it might benefit grocers to see people eating in instead of going out, other parts of the high street are less fortunate as fewer nights out will mean fewer new outfits and so on. Whichever way you look at it, this is shaping up to be another difficult year for certain parts of the retail world.”

The slump in retail sales, combined with the DFS profit warning, has seen shares in the sector drop back sharply, with Next, Marks & Spencer and Kingfisher all down more than 3%.

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