U.K. Retail sales Fall more than forecast as squeeze hits

U.K. retail sales plunged in May for the second time in three months as rising inflation ate into the purchasing power of consumers.

The volume of goods sold in stores and online fell 1.2 percent from April, more than the 0.8 percent decline forecast in a Bloomberg survey. Sales excluding auto fuel dropped 1.6 percent, the most this year.

The figures provide further evidence that the squeeze on households is now starting to hit home, with stores from Topps Tiles to clothing chain Next warning of difficult trading conditions in recent weeks. Sofa retailer DFS Furniture Plc said Thursday that the number of shoppers in its stores has fallen significantly, blaming last week’s election and general economic uncertainty.

That augurs ill for a consumer-reliant economy and adds to the problems facing Prime Minister Theresa May, who is heading toward Brexit talks with her Conservative Party stripped of its parliamentary majority following last week’s disastrous election result.

Except for fuel, every retail category saw sales fall last month, suggesting that rising prices triggered by the weak pound are forcing households to cut back on discretionary items.

Household goods dropped 5.7 percent, clothing and footwear fell 0.1 percent and sales at department stores declined 0.8 percent. Other stores, including sellers of computers and books, saw a 2.9 percent decline. Food sales weakened by 0.9 percent.

The report is clear of any distortions caused by the Easter vacation, which fell in April this year and in March in 2016. Annual sales growth slowed to 0.9 percent, matching the weakest level since April 2013.

Earnings Squeeze

Real earnings are now falling at the fastest pace in almost three years as inflation races ahead of wage growth. Average store prices excluding auto fuel rose 2.8 percent last month, the most since March 2012, according to the ONS.

“Increased retail prices across all sectors seem to be a significant factor in slowing growth,” said ONS statistician Kate Davies.

The combination of flagging consumer spending and prices rising faster than expected presents a challenge for Bank of England policy makers, who will announce their latest policy decision at noon in London. While some have expressed concern over inflation, traders see little chance of a rate rise before 2019.

Sales are still on course to contribute to growth in the current quarter after they slumped in the first three months of 2017. They’ll increase unless June sees a fall of 3.3 percent drop, a decline last seen in 2008. Sales rose 0.6 percent in the latest three months.

Bloomberg