UK retail sales figures stronger than expected

UK consumers showing resilience in the face of rising prices

By Stuart Cole | @Stuart Cole | 23 June 2023


A better set of retail sales numbers from the UK this morning, providing a small chink of light in what has otherwise being a somewhat depressing week for the UK economy-wise. The 0.3% rise seen in May’s headline monthly reading comfortably beat forecasts of a -0.2% fall, likely the consequence of the better weather seen in the UK of late alongside the added benefit of the Bank Holidays found in May, plus the extra holiday attributable to the King’s coronation. This once-in-a-lifetime event probably encouraged consumers to loosen their purse strings a little on the basis that many people may not witness such an event again. The reported increased spending seen on outdoor goods, summer clothing, fuel sales and in garden centres are all testament to a spending boost predicated on the better weather and these public holidays.

Accompanying the figures was the latest consumer confidence number, rising from -26 to record a 17-mth high of -24, and reinforcing the message that consumption so far appears to be largely weathering the cost of living crisis. But it is a concern for the BoE, as resilient consumption makes its job of bringing inflation back under control that much more difficult. Indeed, the impact of yesterday’s 50bps interest rate rise will likely be blunted by the cuts in energy bills that are due to benefit consumers from July, providing an approximate 0.8% boost to real disposable incomes and outweighing the consumption drag from higher mortgage rate payments.

It is too soon to be suggesting that consumption is set for a strong recovery per se; rising prices are very much cancelling out the benefits of rising wages and benefit payments. But the clear message emerging is that the collapse in consumption feared at the start of the year has not materialised and that a consumer-led downturn, on the current evidence, looks as if it may be avoided. With the increase in consumer confidence also suggesting resilience in consumer demand, the BoE may find itself forced to continue hiking interest rates aggressively to the extent that businesses are forced to shed labour before aggregate demand finally buckles.