UK shoppers return to the high street in May after staying away in April

A solid bounce back in the May retail sales data from the UK this morning, and very much suggesting that shoppers are keen to make up for the lost spending opportunities they suffered in April on account of the wet weather seen.

After the (revised) -1.8% monthly fall in sales reported in April, today’s report showed sales bouncing back strongly in May, growing by 2.9% on the month and by 1.3% on an annual basis. With the wet weather seen in April (rainfall was 68% above average) largely blamed for keeping consumers away from high streets and shopping centres over the month, there were some fears that the heavier rainfall patterns seen again in May (rainfall was 20% above average) would have a similar effect. However, shoppers clearly decided that May was a relatively 'dry' month, a sentiment that was no doubt boosted by the fact that it was also the hottest May recorded since temperature records began (1884). And it was clearly enough to persuade consumers to venture out and take advantage of the discounts still on offer following April's disappointment.

And this change in sentiment is significant. April's soft spending numbers had been largely fingered as the key reason for the flat GDP number recorded that month, which in turn had raised fears regarding the outlook for Q2 growth as a whole and in turn seen pressure grow on the Bank of England (BoE) to instigate a cut in interest rates as soon as possible. However, combining today's May report with the upwards revision made to April’s figure (+0.5%), will in sum add around 0.2% to the Q2 GDP reading, suggesting that the UK economy is recovering more strongly from last year’s recession than had been feared. And while the BoE will be more concerned about the inflation outlook and wages growth numbers when deciding when to cut interest rates, today's numbers marginally weaken the case for a cut to come as soon as August.

May's stronger numbers were driven largely by non-food sales, where sales volumes rose by 3.5%, the biggest increase seen since April 2021, with clothing sales and household goods volumes performing particularly well. However, the retail sales numbers is a volatile series and frequently subject to revisions, and as such today’s numbers need to be read with this in mind. More broadly, taking the April and May figures together, the suggestion is that spending has not collapsed, as had been feared last month, but neither is it necessarily soaring to new highs. Rather, looking at the average growth rate in annual sales YTD, the picture is more one of a largely flat performance, but one which, as real incomes grow, can be expected to show steady, if unspectacular, growth. And, with the Office for National Statistics reporting that many households have now replenished the buffer of savings they keep for ‘rainy day’ emergencies, so the increases in disposable incomes expected this year should translate into a pick-up in spending. All in all it strengthens our conviction that the BoE will wait until September before deciding to cut interest rates.