In what is the latest sign of the growing hit to the economy from rising inflation since the Brexit vote, British retail sales fell more sharply than expected in May, data showed on Thursday.
In what is a heavier downturn that the median forecast for a fall of 0.8 percent in a Reuters poll of economists, retail sales volumes fell 1.2 percent month-on-month in May, and this happened even before last week’s election which left the country without a majority government and facing political uncertainty.
Economists had described as a blip, there was an unexpectedly strong jump in April.
A slowdown in pay growth and the fall in the value of the pound since last year’s referendum decision to leave the European Union, resulted in British households being pinched by a rise in inflation.
“Increased retail prices across all sectors seem to be a significant factor in slowing growth,” ONS statistician Kate Davies said about May’s weaker-than-expected sales volumes.
Sales fell across the board except for fuel in monthly terms.
While pay, when adjusted for inflation, fell by the most since 2014, inflation hit its highest level in nearly four years at 2.9 percent, data this week showed.
A factor behind Prime Minister Theresa May’s loss of her parliamentary majority in last week’s election that is widely considered to be true is the dissatisfaction with living standards.
Stronger than a rise of 0.2 percent in the three months to April, retail sales in the three months to May rose by 0.6 percent, the ONS said.
The ONS on Thursday revised the jump in sales in April even higher.
Compared with economists’ forecasts for a 1.7 percent rise, the joint weakest increase since April 2013, retail sales rose 0.9 percent compared with a year earlier.
While blaming a dip in demand on customer uncertainty about the economic outlook and about the election, the British retailer DFS Furniture warned earlier on Thursday that it would not meet profit expectations for the current year.
For the first time in nearly four years in May, credit card firm Visa said British consumers cut their spending earlier this week. A slowdown in spending too was suggested by other measures of spending published before Thursday’s ONS data.
Edging up to 3.2 per cent was the retail price deflator – a gauge of inflation in stores.
The biggest driver of British economic growth is typically consumer spending.
Even while many private-sector forecasters are doubtful, stronger exports and business investment is expected to offset most of the shortfall in consumer demand this year, the Bank of England said last month.
As it focuses more on the weakness in pay growth than the rise in inflation, which it hopes will prove to be a short-lived reaction to the fall in the value of the pound, the BoE is expected to keep interest rates on hold this time also.
(Adapted from CNBC)