Retail sales fall as consumers feel inflation squeeze

Latest figures show like-for-like retail sales dropped by 0.4% last month. Picture: John Devlin
Latest figures show like-for-like retail sales dropped by 0.4% last month. Picture: John Devlin
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Retail sales sunk last month and online trading hit record lows as shoppers tightened their belts in the face of rising inflation, new figures have shown.

The latest report from the British Retail Consortium (BRC) and KPMG found that like-for-like retail sales dropped by 0.4 per cent in May, down from 0.5 per cent growth last year.

With inflation continuing to rise, consumers are starting to feel the pinch

Paul Martin

Meanwhile, online sales of non-food products slumped to the lowest level since records began in 2012, growing by 4.3 per cent last month compared to a 13.7 per cent jump in 2016.

• READ MORE: Martin Flanagan: Consumers remain surprisingly confident

However, food sales reached their highest level in more than five years – at 3.2 per cent for the three months to May. Sales of food and drink were boosted by the warm weather in the run-up to the May bank holiday, with double-digit growth in beer, wine and spirit sales.

Paul Martin, UK head of retail at KPMG, said retailers had been “brought back down to earth with a thump” after April’s sales surge due to the timing of the Easter holidays.

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He said: “The impact of inflationary pressures on the nation’s purse continues to play out in this month’s figures, with shoppers evidently spending more on food and drink than on non-food purchases.

“With inflation continuing to rise and wage growth stagnating, consumers are starting to feel the pinch – although the highly competitive nature of the UK grocery market continues to play out in the consumer’s favour.

“Many retailers, particularly fashion stores, will be poised and ready to make the most of the upcoming summer, so hopefully the weather will play fair.”

• READ MORE: Inflation hits highest level in more than three years

Inflation hit its highest level for nearly four years in April at 2.7 per cent, tightening the squeeze on consumers, who are already struggling due to low wage growth.

The Office for National Statistics (ONS) announced in May that household spending hit 0.3 per cent in the first three months of the year, eking out its lowest quarter-on-quarter growth since 2014.

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However, the warm weather helped retail sales outstrip expectations to rise by 2.3 per cent month-on-month in April, according to the ONS.

BRC chief executive Helen Dickinson added: “Underneath the headlines, there’s continued variation in the performance of food versus non-food products, as sales performance of the two become increasingly polarised.

“Food sales, albeit positively distorted by inflation, continue to see annual growth, while in non-food categories, which are predominantly capturing discretionary spending, retailers find themselves having to compete even harder.”

Separate figures from Barclaycard showed consumer spending growth had fallen to a ten-month low of 2.8 per cent in May, as shoppers spent more money on experiences over goods.

• READ MORE: Cost pressures weigh on profits in key services sector

Meanwhile, activity in the UK’s dominant services sector eked out its slowest growth since February as inflation and general election uncertainty took its toll last month.

The Markit/Cips services purchasing managers’ index (PMI) fell to 53.8 in May, down from 55.8 in April and below economists’ expectations of 55.0. A reading above 50 indicates growth.

The services sector – ranging from retail to banking, pubs and IT – saw output ease back from April’s four-month high after the demand for new orders slipped.

It comes after PMI reports for the manufacturing and construction industries beat expectations for May after delivering solid performances.

Chris Williamson, chief business economist at IHS Markit, said: “Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.”

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