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UK Retail Sales Fall As Britons Reduce Spending On Food

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UK retail sales declined in May as high cost of living pulled consumer sentiment to a record low and weighed on households' spending in food stores, data showed on Friday.

Retail sales volume dropped 0.5 percent month-on-month in May, reversing a revised 0.4 percent increase in April, the Office for National Statistics said. Economists had forecast sales to drop 0.7 percent after April's initially estimated 1.4 percent increase.

Food sales declined 1.6 percent on month in May as consumers reduced their spending in food stores reflecting the impact of rising food prices.

At the same time, non-food store sales remained unchanged in May as the 2.2 percent increase in clothing sales was offset by the 2.3 percent fall in household goods stores. Automotive fuel sales increased 1.1 percent.

Excluding auto fuel, retail sales were down 0.7 percent, in contrast to the revised 0.2 percent rise in April. Nonetheless, the pace of decrease was slower than the 1.0 percent expected fall.

On a yearly basis, overall retail sales volume decreased at a slower pace of 4.7 percent after easing 5.7 percent in April. Sales were forecast to drop 4.5 percent.

Excluding auto fuel, the decline in retail sales slowed to 5.7 percent from 6.9 percent in April. Economists had forecast an annual fall of 5.1 percent.

In the three months to May, sales volumes fell 1.3 percent when compared with the previous three months.

With a further rise in inflation over the coming months set to exert a bigger squeeze on households' real incomes, retail sales will probably continue to struggle ahead, Capital Economics economist Nicholas Farr said.

Given signs of resilience in other timely indicators of activity, the weakness in the retail sector will not be enough to deter the Bank from hiking rates altogether, the economist said.

The Bank Rate is likely to be raised from 1.25 percent now to 3.00 percent next year, higher than the peak of 2.00 percent expected by the consensus of analysts, Farr added.

Elsewhere, survey results from the market research group Gfk showed that British consumer confidence declined to a new record low in June. The consumer sentiment index dropped one point to -41 from -40 in May.

The consumer mood is currently darker than in the early stages of the Covid pandemic, the result of the 2016 Brexit referendum, and even the shock of the 2008 global financial crisis, and now there is talk of a looming recession, Joe Staton, client strategy director, GfK said.

"One thing is for sure, Britain faces a stark new economic reality and history shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough," said Staton.

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