UK consumers defy high inflation and shop more in June

LONDON, July 21 (Reuters) – British retail sales grew faster than expected in June despite persistently high inflation, thanks to unusually warm weather and a rebound in food sales after King Charles’ coronation disrupted spending in May, official figures showed on Friday.

While inflation at around 8% – the highest in any major economy – remains a challenge for many households, some economists say the fall in energy prices from July 1 will give consumers more disposable income.

Sales volumes in June were 0.7% higher than in May, the Office for National Statistics (ONS) said, a bigger increase than the 0.2% forecast by economists in a Reuters poll.

Compared to a year earlier, sales were 1.0% lower, beating forecasts for a 1.5% decline.

As well as the bounce-back in food sales, department stores and furniture stores also had a strong month, the ONS said.

In May, households spent less on food retailers, possibly because they ate out more in restaurants due to an extra public holiday to mark the coronation of King Charles.

Last month was Britain’s hottest June on modern records, boosting supermarkets and department stores. Only clothing and shoe stores saw lower sales last month.

Sterling jumped by almost a quarter of a cent against the US dollar after the data before giving away its gains.

SPENDING, CONSUMPTION STAGNANT

The longer-term picture is less rosy, however, as shoppers are getting less for their money than three years ago and overall consumption has stagnated along with the economy.

Market research firm GfK reported that consumer confidence fell in July for the first time since January.

While the amount of money spent by retailers last month was 17.9% higher than before the COVID-19 pandemic, the number of goods bought was 0.2% lower, the ONS said.

Food inflation was particularly high, with prices in June 17.4% more than a year earlier, not far below March’s 45-year high of 19.2%, according to ONS data published on Wednesday.

Britain’s competition regulator said on Thursday that the high prices were not due to weak competition between supermarkets, after allegations of profiteering.

Friday’s data showed the first monthly fall in retail prices, excluding fuel, since January 2022, before Russia’s invasion of Ukraine intensified inflationary pressures in Britain.

Some economists now see signs of a turnaround ahead for retail sales, despite the impact of higher Bank of England interest rates. The BoE raised interest rates by 5% last month and is expected to increase it again to 5.25% in August.

“Overall, we expect retail sales volumes to increase moderately for the rest of the year, but a larger rebound will have to wait until the economy improves more broadly, which may not be until the second half of 2024,” said Thomas Pugh, an economist at accountant RSM UK.

Some analysts are less positive.

“With the full drag on activity from higher interest rates not yet felt, we still think the economy will go into recession in the second half of this year,” said Ashley Webb of Capital Economics.

Reporting by David Milliken; Editing by Kate Holton, Andrew Heavens and Angus MacSwan

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