UK’s May Retail Sales Top Economists’ Expectations

To everyone’s surprise, sales in the U.K. have boomed in May and are expected to hit their highest level in more than 26 years in June, according to Reuters. Retailers’ overall assessment of the business situation improved to +20, the highest since last August and up from +11 in February. Low inflation, falling prices, a stable employment and good weather have all helped retail sales.

In general, firms are more optimistic for the coming quarter, although investment intentions for the year ahead remain negative for the second quarter running. The U.K.’s Office for National Statistics also showed last week that sales had risen by 1.2 percent in April, the strongest increase since November, after warm weather encouraged shoppers to buy summer clothes, according to BBC News. Howard Archer, chief U.K. and European economist at IHS Global Insight said: “It is looking increasingly likely that robust consumer spending will help the U.K. economy regain momentum in the second quarter after GDP growth moderated to just 0.3 percent quarter-on-quarter in the first quarter. We currently forecast second-quarter GDP growth to improve to 0.7 percent quarter-on-quarter.”

Although the U.K.’s eCommerce leads the way in Europe, the growth in volume of Internet sales slowed (+38 percent) in the year to May and was actually below expectations (+59 percent). The good news, though, is that Internet sales are expected to pick up in June (+49 percent).

“Retailers will be encouraged to see growth in sales and orders on the high street bounding ahead,” said Rain Newton-Smith, CBI Director of Economics in a written statement. “Low inflation, which we expect to remain below 1% for the rest of the year, has given household incomes a much-needed boost and greater spending power.”

CBI’s survey also showed that 60 percent of respondents said volumes were up on a year ago, while 9 percent said they were down. In fact, next month, the volume of orders placed with suppliers is expected to be at its highest since September 1996.

Most retail sub-sectors reported robust growth in sales volumes, including grocers and non-specialized stores. After some weakness in the sector around the turn of the year, there are further signs of improvement.

“Overall the outlook is bright for firms on the high street, but challenges still remain, especially for food retailers, who are still feeling the heat of stiff price competition from new entrants to the sector. And investment plans have also taken a hit,” said Newton-Smith.

The numbers are based on the Confederation of British Industry’s latest quarterly Distributive Trades Survey, conducted from April 30 to May 15, which surveyed 134 firms including 63 retailers. Firms responding to the survey are responsible for a third of employment in retailing.

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