UK Retail Sales Drop 2.7% in Worrying Sign for Economy
UK retail sales suffered the sharpest fall since 2023, in a sharp reversal of consumer spending that suggests the economy could be struggling in the second quarter.
The volume of goods sold online and in stores dropped 2.7% in May, the Office for National Statistics said on Friday. It was far worse than the 0.5% fall expected by economists.
While the opening months of 2025 saw Britain’s retail sector perform well, a sales surge fueled by good weather and rising real wages has come to a sudden halt. May’s fall completely reversed gains since the start of the year.
A weaker retail sector will add to headwinds facing the UK economy in the second quarter after bumper growth at the start of 2025. While gross domestic product expanded 0.7% in the first quarter, the economy contracted in April and forecasters expect a sharp slowdown over the second quarter.
The pound pared gains after data showed retail sales fell more than expected, to trade 0.1% higher at $1.3484 on the day.
It presents a headache for the Labour government which needs to boost Britain’s tepid growth rates to keep its spending commitments on track. A hole in the government’s fiscal plans threatens to trigger more tax rises in Chancellor of the Exchequer Rachel Reeves’ next budget, expected in November.
The ONS said the drop in May was driven by a 5% plunge in food sales with weakness across the board in the retail sector. Household good stores suffered a 2.5% tumble and clothing and footwear saw a 1.8% slump.
“Momentum is slowing due to persistent inflationary price pressures, international trade disruptions, and cautious consumer sentiment,” said Rajeev Shaunak, head of consumer at MHA, an accountancy firm.
A cautious consumer has held back the economy in recent years and there were hopes that households were finally loosening their purse strings. Instead shoppers may have merely brought forward spending, leading to the sharp pullback in May.
However, household confidence improved in May and June after hitting a new low under the Labour administration in April, when a raft of bills rose and Donald Trump stepped up tariffs action against major trading partners. Gradually easing interest rates at the Bank of England, historically low unemployment and above-inflation wage increases are shoring up household finances.
On Friday, GfK’s closely watched gauge showed confidence in June recovering to its highest level this year, though it remains below levels seen when Labour took power last summer.
Neil Bellamy, consumer insights director at GfK, warned that consumer confidence is “still fragile,” pointing to elevated inflation and warning of a possible hit from rising petrol prices after the escalation of tensions in the Middle East.
Source : Bloomberg
