Royal wedding spending splurge boosts retail sales unexpectedly in May

Business

The royal wedding and fine weather in May lifted retail sales considerably above expectations in May, delivering some relief for the beleaguered sector.

The Office for National Statistics (ONS) reported that sales volumes jumped 1.3 per cent in the month, well above the 0.5 per cent City of London analysts had pencilled in.

Sterling spiked to $1.3437 in the wake of the data, up 0.47 per cent on the day, as traders adjusted their bets on the likelihood of an earlier rate rise from the Bank of England.

“Feedback from retailers suggested that a sustained period of good weather and royal wedding celebrations encouraged spending in food and household goods stores in May,” said the statistics agency.

The biggest contributor to the surge in sales volumes was from non-store retailing (driven by e-commerce), but supermarket sales were also up in the month.

A host of major high street names – from House of Fraser to Mothercare – have been closing stores and announcing jobs cuts in recent months, while the likes of Maplin and Toys R Us have gone into administration.

That distress has been reflected in the official retail statistics, with the annual rate of sales volume growth slipping to just 0.8 per cent in December.

But in May that rate of growth picked up to 2.1 per cent, the highest rate seen since June 2017.

Wedding and weather effect

Retail sales account for around 20 per cent of UK GDP and are seen as a good indicator of UK household spending appetite.

Overall GDP growth slipped to 0.1 per cent in the first quarter of 2018, the weakest rate in more than five years.

The Bank of England has estimated that the slowdown is mainly due to the snowstorms of February and March, and that growth will bounce back to 0.4 per cent in the second quarter.

However, the ONS argues there are also signs of an underlying slowdown for the UK economy.

Analysts were split over the significance of the latest retail sales data.

“Today’s figures support our view that annual spending growth should pick up from 1.1 per cent in the first quarter to about 2 per cent by early 2019, helping the economy to regain some momentum,” said Ruth Gregory of Capital Economics.

However, Samuel Tombs of Pantheon said the spending splurge was likely to prove a “weather-related blip”.

“Non-food sales likely will mean-revert in June, dragging overall volumes down. Food sales likely will weaken in June too, given that supermarkets attributed some of the 1.1 per cent month-to-month rise in sales volumes to the good weather, while motor fuel sales volumes also will struggle in response to the jump in pump prices,” he said.

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