Retail sales fall 1.4% in May
Retail sales fell by 1.4% in May, adding to the already gloomy picture of the UK economy. Experts had predicted a fall in retail sales in May after a cocktail of factors led to a surge in April's figure, but the drop of 1.4% in the month was much worse than the consensus forecast drop of 0.6%.
The pound saw no let up of the battering it's received recently on Thursday, with sterling falling 0.43% against the dollar in response to the news, testing the 1.6200 support level to sit at 1.6124.
Joel Kruger, technical strategist at DailyFX said the "utterly horrific" data would likely keep the pressure on GBP/USD in coming sessions.
The pound already suffered heavy losses against the dollar on Wednesday after unemployment data showed a worrying rise in claimant count.
This added to news earlier in the week that the Consumer Price Index measure of inflation flattened at 4.5% in May, after spiking to that level in April from 4% in March, denting hopes for an interest rate rise before the end of the year.
Richard Driver, currency analyst at CaxtonFX, comments: "This morning's retail sales figures are appalling. These are the worse monthly figures in sixteen months. The market was ready for a weak result, but this 1.4% contraction totally undoes April's strong figure."
The latest data supports the idea that April's 1.1% spike in sales was due to a combination of the bank holiday, warm weather and the Royal Wedding improving consumers' spending appetite.
Year-on-year May's figure showed a muted 0.2% rise in sales volumes, and excluding petrol and food the underlying trend over the past few months has been down.
Vicky Redwood, senior UK economist at Capital Economics, says: "The retail sector therefore looks unlikely to contribute much, if anything, to overall GDP growth in the second quarter. Flat sales in June would leave sales in the second quarter as a whole down by 2%, compared to a slight 0.1% rise in the first quarter." David Miller, partner at Cheviot Asset Management, believes the key drive for the figures can be attributed to living cost inflation, and its feed into wage growth.
"This week we have been plagued by pretty negative statistical news; from rises in food prices on Tuesday; to increases in the number of Job Seekers' Allowance claimants on Wednesday. Today's figures show we are back to retail reality, particularly in relation to the fall in food store sales which is the largest fall on record."
He adds: "These poor retail figures show that discretionary spending is under pressure. Job uncertainty and living cost inflation are further aggravating this."
This article was written for Interactive Investor
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).