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UK retail sales rebounded much stronger than expected as consumers grew more confident amid easing inflation, delivering good news about the economy ahead of the election.
The amount of goods purchased rose 2.9 percent between April and May, following a sharp contraction in the previous month and the fastest growth since January, the Office for National Statistics said on Friday.
The warmer weather helped boost spending on clothing and furniture, the ONS said, with the increase exceeding the 1.5 percent growth forecast forecast by economists polled by Reuters.
Government finances were also better than expected in the first two months of the financial year, separate data released on Friday showed, but continued to point to huge challenges facing the next prime minister.
The ONS has revised retail sales upwards in April, from a decline of 2.3 percent to a decline of 1.8 percent. The revision, along with strong sales growth last month, suggests that economic growth in the second quarter could be stronger than the 0.4 percent currently forecast, said Rob Wood, economist at Pantheon Macroeconomics.
During the first quarter the economy grew by 0.6 percent, the fastest in two years and enough to pull Britain out of recession.
While the figures show clear economic improvement, they may be too late or too modest to boost the election chances of the Conservative party, which is 20 points behind Labor with less than two weeks to polling day on July 4.
Separate data published by research firm GfK showed that consumer confidence rose for the third month in a row in June to the highest level since November 2021, even as it remained well below the pre-pandemic average of 2015-2019.
But British business activity grew at the slowest pace since November, according to a closely watched survey that suggested spending decisions were being put on hold due to the general election. It also pointed out the ‘stubbornness’ of inflationary pressures.
Andrew Wishart, economist at Capital Economics, said the May retail sales data “show tentative signs that the strengthening of real income growth as inflation returns to target is feeding through to stronger spending.”
He added: “With inflation returning to target and consumer confidence improving, retail sales may continue to rise.”
Public sector borrowing was £33.5 billion in the first two months of the financial year, £0.4 billion more than the same two-month period a year earlier, but £1.5 billion less than £35 billion that the Office for Budget Responsibility had predicted. the British budget watchdog. Borrowing in May was also higher than last year as government spending on public services and benefits increased, but the increase was less than forecast by the OBR.
However, the public finance challenge remains significant for any new government. Public debt – the sum of past borrowing over time – rose relative to the size of the economy to 99.8 percent in May, up 3.7 percentage points from a year earlier and highest level since the early 1960s.
Alex Kerr of Capital Economics said May’s public finance figures “provided better news on the fiscal position after the recent run of worse-than-expected outcomes”. But he added that “they are doing little to reduce the scale of the fiscal challenge facing the next government after the general election”.
The S&P Global flash UK PMI composite manufacturing index – where any figure above 50 represents growth – fell below analyst expectations from 53.0 in May to 51.7 in June, according to data also published on Friday.
The slowdown was caused by service sector companies reporting that their spending decisions had been put on hold ahead of the general election. Worryingly, the survey also showed that private sector price growth rose to the highest level in four months in June.
Chris Williamson, economist at S&P Global Market Intelligence, said that while a slowdown in economic growth may prove temporary if companies respond positively to the policies announced by the next government, “the stubbornness of underlying inflationary pressures above the Bank of England’s target still somewhat ingrained in it.”