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U.K. retail sales experienced a sharp decline in May, reversing the gains made in April, with food store sales particularly hard-hit. According to data released by the Office for National Statistics (ONS) on Friday, retail sales fell by 2.7% month-on-month, following a revised 1.3% increase in April. Economists had anticipated a modest decline of 0.5% for May, but the actual figure came in worse than expected.
On an annual basis, retail sales were down by 1.3%, compared to a significant 5.0% increase in April, which had been boosted by favorable weather conditions that encouraged British consumers to return to the high streets, especially for food stores. The sharp monthly decline was attributed to weaker sales across several sectors, with food stores seeing particularly large reductions.
U.S. Retail Sales Also Experience Sharp Decline
This downturn in U.K. retail sales mirrors trends seen in the U.S., where retail sales also fell in May. U.S. retail sales dropped by 0.9% last month, marking the largest decrease since January. This follows a downwardly revised 0.1% dip in April. The continued decline reflects the unwinding of the tariff-driven surge seen in March and highlights the ongoing economic uncertainty exacerbated by President Trump’s often shifting tariff policies. The tariffs have created difficulties for businesses to plan ahead, further weighing on consumer spending.
Consumer Sentiment Improves, But Remains Negative
In the U.K., consumer sentiment showed some improvement in June, rising to its highest level since December. However, the sentiment remains in negative territory, according to a survey by the British Retail Consortium. Despite the uptick, concerns about the broader economic environment, particularly regarding weaker labor markets and escalating energy prices due to the Middle East conflict, continue to weigh on consumer confidence.
Bank of England Maintains Rates, Focus on Economic Risks
The Bank of England (BoE) held its benchmark Bank Rate at 4.5% during its meeting on Thursday, maintaining its focus on the risks stemming from a weaker labor market and the impact of rising energy prices, exacerbated by geopolitical tensions in the Middle East. The BoE continues to monitor these challenges as it assesses the outlook for inflation and broader economic growth.
As retail sales in both the U.K. and the U.S. showed signs of weakness in May, the continued uncertainty surrounding trade policies and geopolitical tensions is likely to keep economic growth subdued. Consumers are feeling the pinch of inflationary pressures, and businesses are struggling to plan effectively in an unpredictable environment. While some improvements in consumer sentiment were observed, the overall outlook remains cautious, particularly as central banks focus on the balance between inflation control and economic growth.
