Retail sales rise unexpectedly thanks to falling petrol prices and warm weather
The UK’s retail sector did unexpectedly well last month, with retail sales volumes up 0.3% in May.
Data from the Office for National Statistics (ONS) said this performance was better than the 0.2% drop that economists had forecast.
The bounce was largely due to a rise in petrol and diesel sales, which the ONS said could be down to falling fuel prices, which reached their lowest point since early 2022 last month.
The figures measure the amount bought – volume – rather than the amount spent – value. Fuel stores sold 1.7% more still in May, following a 1.7% drop in April. That was still 9.5% below pre-Covid levels.
Non-store retailing sales volumes rose by 2.7% in May, the ONS revealed on Friday. But May’s overall 0.3% rise was still a slowdown from the 0.5% increase in retail sales volume seen in April.
The poor performers included food shops. Continuing a trend where people buy less, but pay more for it, sales dropped again, this time by 0.5%, the ONS said.
In May people bought around 3.3% less food than they did in 2019, but paid almost 20% more for it.
ONS senior statistician Heather Bovill said: “Retail sales grew a little in May, with online shops doing particularly well selling outdoor goods and summer clothes, as the sun began to shine.
“May also saw a return to growth for fuel sales after a dip in April.
“Garden centres and DIY stores also saw growth, as the good weather encouraged people to start home and garden improvements.
“These were offset by food sales, which fell back as prices in supermarkets continued to rise, exacerbated by many people ordering takeaways and drinking out more during the extra bank holidays, while jewellery and art also fell back after a strong April.”
Deloitte retail partner Kelly Miely
“A trio of Bank Holidays, combined with the arrival of warm weather, encouraged consumers to spend on summer clothing and outdoor goods. This led to an unexpected lift in retail sales volumes in May.
“Despite the sunshine and official data showing some strong annual pay increases, the situation remains difficult for both retailers and consumers. Consumers in particular are alive to persistent inflation driving stubbornly high food prices.
“A price sensitive consumer is likely to stay with retailers that remain competitive by offering good value product ranges and cutting price of core items.”
EY UK&I retail lead Silvia Rindone
“While UK retail sales continued to see marginal growth in May, with a month-on-month rise of 0.3%, it was the lowest level of growth seen in the last six months, as the slew of bank holidays failed to boost sales as expected.
“The increasing divergence between retail sales values and sales volumes continued in May as price increases impacted the amount of goods UK consumers took home.
"There was some positive news for online retail sales though, as the warmer weather saw non-store retailing sales volumes increase by 2.7% in May, with consumers turning to online channels to update their summer wardrobe and purchase outdoor-related goods.
“Despite this, food manufacturers reported the first drop in production costs since 2016. Lower energy prices and a fall in shipping costs have, for now, outweighed wage bills which have risen at their fastest rate in over three decades for a fifth quarter in a row.
“It may still be some time before consumers see this benefit on the shelves though, as food price inflation was at its highest since 1977 in April. Affordability, remains is at the top of consumers’ minds. EY’s latest UK Future Consumer Index report found that 43% of consumers state it as a key decision when making a purchase. Consumers also continue to be more open to private label, with 80% willing to buy private label packaged food.
“As shoppers continue to make more considered decisions on where they spending their money, retailers need to work hard to better understand the factors influencing buying behaviour by re-evaluating ranges and pricing strategies. While a challenging process, those early adopters are now seeing an increase in market share – it’s now time for everyone else to be doing the same if they want to see the same returns."
Clover UK (merchant payment solutions provider) general manager Jon Boland
“It is good news for both retailers and the wider economy that sales have held up better than expected. In May, consumers continued to spend despite inflation weighing on disposable incomes.
"Analysing our client base of more than 80,000 small and medium enterprises (SMEs) in the UK, we can see a couple of seasonal and structural drivers at play.
"Firstly, consumers took advantage of improving weather and the extra bank holiday in May to increase their purchases of gardening supplies and accessories. Our data shows that card-based spending at garden centres rose substantially in the month. We are also seeing consumers look for value, seeking out discounts and deals to make their money work harder. Underscoring this is the fact that card-based spending at discount stores was up in May. With inflation persisting, this drive to value is unlikely to lose steam any time soon. In addition, we are seeing a decline in sales at pubs and tourist attractions as consumers become more selective with their discretionary spending.
"For small businesses, delivering value while maintaining the quality of customer experience is pivotal in the competition for consumer spend.”
Wealth Club manager of the quality shares portfolio Charlie Huggins
"Retail sales volumes in May came in slightly better than expected, with better weather helping online sales of both outdoor goods and summer clothing.
"Consumer spending remains robust in the face of inflationary pressures and results from retailers themselves back this up. Earlier this week NEXT upgraded its profit expectations on the back of much stronger than expected trading.
"The big question is how much longer this can persist?
"Mortgage rates have increased significantly in recent weeks and inflation is at risk of becoming entrenched. This doesn't bode particularly well for consumer confidence in the back half of the year. At that point retailers may really start to feel the pinch.
"But for now, the UK consumer continues to defy the doom mongers."