Retail sales fall 1.4% in May

16 June 2011

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.

Read: How to prepare for an interest rate rise

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

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