Rising prices the ‘significant factor’ in retail sales slowdown

Shop sales fell by much more than expected in May as the squeeze on wages began to take a bite out of shoppers’ confidence.

Figures released by the Office for National Statistics (ONS) showed retail sales falling by 1.2% compared to a month earlier.

If you strip out fuel from that figure, the size of the fall swells to 1.6%.

Compared to a year earlier, sales volumes rose by just under 1% – that’s about the same speed as the growth in the UK population.

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It is the lowest year-on-year increase for more than four years.

With the exception of fuel, every retail category reported lower sales than the previous month.

The volume of household goods being sold fell by 5.7%, while food sales seemed to have fallen by less than other sectors, suggesting that consumers are putting a priority on essential purchases above so-called “discretionary” items, such as furniture and electronics.


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The figures come hot on the heels of economic data earlier this week, which showed the rate of inflation comfortably outpacing the speed by which our wages our growing.

:: Pay growth slowdown tightens household squeeze

The knock-on effect of that is that people’s spending power is slowly being eroded.

Ole Black, ONS senior statistician, put the onus for falling retails sales squarely on to the impact of inflation, saying: “Increased retail prices across all sectors seem to be a significant factor in slowing growth.”


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Figures have shown a recent decline in consumer spending and also in footfall – the measure of how many people are going to shops.

Those are important measurements because, for years, the UK economy has been propped up by consumer spending.

Anything that affects that negatively is likely to have a significant impact upon the wider economy.


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James Knightly, senior economist at ING, said: “So far, household spending has been supported by increases in unsecured borrowing, but this looks unsustainable and so we expect to see worse numbers for retail sales in coming months.

“There will be more downside risk should the labour market weaken further given the economic uncertainty caused by Brexit.”

A number of retailers, including Next and Topps Tiles, have reported tough retail conditions in recent weeks.

Furniture store DFS
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DFS believes the furniture sector is suffering as a whole

On Thursday the furniture giant DFS saw its share price fall sharply after it issued a profit warning, which it blamed on difficult trading conditions.

It said “customer uncertainty” had led to fewer people coming into its stores and a fall in the number of orders.

The value of DFS shares fell by more than 20% in early trading.

Despite the cracks that have started to appear in the economy, and the fact that inflation is now way above the target of 2%, it’s still considered unlikely that the Bank of England will intervene by pushing up interest rates.


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