Spending in stores and online recovered strongly last month, as better weather, falling inflation and rising consumer confidence stimulated spending.
The Office for National Statistics’ monthly update shows retail sales volumes rose 2.9% in May, following a weather-affected 1.8% decline in April.
The ONS said most retailers had a better month in May, with clear increases in the clothing, footwear and homewares sectors. Clothing sales rose 5.4% as retailers managed to shift summer stock.
Kathleen Brooks, research director at XTB said the strength of apparel sales may have been affected by one-off events. “Could this be the Taylor Swift effect, with people – including myself – spending money on new outfits ahead of her Eras tour, the UK leg of which is expected to add £1 billion to the UK economy?”
The official data followed the release of GfK’s latest consumer sentiment snapshot, which shows sentiment at its highest level in two and a half years.
During the three months to May – a better indication of the underlying trend in spending – retail sales rose 1%. Yet they remained 0.5% below the level just before the start of the Covid pandemic in February 2020.
Retail sales represent less than half of total consumer spending and exclude categories such as car sales, dining out and hotel stays.
S&P’s broader monthly survey of the economy showed the pace of growth slowed in June after Rishi Sunak called a snap election.
The S&P Purchasing Managers’ Index showed activity grew at the slowest pace in seven months, with weakness concentrated in the services sector.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Flash PMI survey data for June points to a slowdown in the pace of economic growth, indicating GDP is now growing at a sluggish quarterly pace of just over 0.1% .
“The slowdown partly reflects uncertainty about the business environment in the run-up to the general election, with many companies seeing a pause in decision-making pending clarity on various policy measures.”
The composite PMI manufacturing index fell to 51.7 in June from 53.0 in May. A reading above 50 indicates that the economy is growing rather than shrinking.
Rob Wood, the chief UK economist at Pantheon Macro, said the fall in the PMI was an election-related error. “Retail sales rebounded strongly after April’s rain-soaked disaster and will continue to gain ground as real consumer wage growth drives higher spending.
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“The incessant rainfall did not stop in May, but rainfall was ‘only’ 20% above average, compared to 68% more than in April. May was also the warmest since at least 1884.”
Andrew Wishart, a senior UK economist at Capital Economics, said the fact that online sales rose 5.9% month-on-month suggests there was more to the May rise than just better weather that attracts shoppers back to the shopping streets.
“Overall, retail sales data for May showed tentative signs that the strengthening of real income growth as inflation returns to target is feeding through to stronger spending,” Wishart said.
Separate ONS figures underlined the scale of the budget challenge facing the next government, with the gap between government spending and tax revenue reaching £15 billion last month – £800 million higher than a year earlier and the third highest for May on record records started in May. 1993.
Last month’s spending was £2.3 billion higher than May 2023, while a £1.5 billion increase in tax revenue was partly offset by weaker national insurance contributions following cuts in the Autumn Statement and Budget.
May’s borrowing figure of £15 billion was slightly lower than the £15.7 billion forecast by the Office for Budget Responsibility, the government’s spending watchdog. April borrowings were revised down by £2.1 billion to £18.4 billion.