Shoppers flooded back on to the high street last month to deliver the best quarter for retail sales since November and set the economy up for stronger growth than expected (Philip Aldrick writes).
Retail sales increased by 0.6 per cent month-on-month in June, according to the Office for National Statistics, rebounding from the dismal 1.1 per cent fall in May and outpacing forecasts for a 0.4 per cent rise.
In the three months to June, sales volumes were 1.5 per cent higher than in the first quarter, bouncing back from a 1.4 per cent decline in the three months to March, the weakest calendar quarter since 2010.
It was the best three-month period since November, before the impact of high inflation, and suggested households have remained resilient despite flagging consumer confidence and the squeeze on incomes from rising prices.
“Households are not tightening their belts in response to higher inflation or Brexit uncertainty,” Paul Hollingsworth, of Capital Economics, the consultancy, said.
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The ONS said retail sales would contribute 0.09 percentage points to the overall second-quarter growth rate, providing some cause for optimism that the GDP figure may be slightly better than forecast when it is published next week.
The National Institute of Economic and Social Research is predicting growth of 0.3 per cent in the three months to June, only marginally above the disappointing 0.2 per cent in the first quarter. Many economists predict growth to slow this year because of weaker consumer demand.
Elizabeth Martins, UK economist at HSBC, said: “The resilience in the numbers is good news for the UK, particularly given a month’s worth of bad news stories, heightened political uncertainty and a big drop in consumer confidence in June.”
Kate Davies, an ONS statistician, saids “A particularly warm June seems to have prompted strong sales in clothing, which has compensated for a decline in food and fuel sales this month.”
Compared with a year earlier, retail sales were 2.9 per cent higher in volume terms in June, also beating forecasts.
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Ms Martins said that “good weather doubtless played a role in this improvement, but a breather in the inflationary uptrend may also have contributed”.
Living standards have fallen again this year as inflation has outpaced pay but prices in June rose more slowly than expected at 2.6 per cent, down from 2.9 per cent in May, giving households a little respite.
June’s warm weather, including the hottest June day in 40 years, appeared to convince people to update their wardrobes. Sales of clothes and shoes rose 0.4 per cent between May and June. Household goods recorded the biggest rise, up 3.3 per cent in the month.
The rebound was particularly welcome because recent measures of consumer confidence have been weak. The GFK consumer confidence report found that consumers did not believe it was a good time to make a big purchase.
Victoria Clarke, UK economist at Investec, said: “The series is highly volatile on a month-to-month basis. We remain of the view that this year will be one in which consumer spending growth will remain weak with consumers under pressure as the squeeze to household real spending power persists and even intensifies.”
