Retail sales in May saw a remarkable boost, marking the fastest growth in 18 months.
The improvement in economic conditions and weather played a significant role, aligning with the Conservative Party’s election narrative.
Strongest Retail Performance in 18 Months
The Confederation of British Industry (CBI) reported a significant rise in retail sales with the weighted balance reaching 8 percent in May, a stark increase from minus 44 percent in April.
This marks the strongest retail performance since December 2022 and suggests the UK economy continues to grow after emerging from recession earlier this year.
Prime Minister Rishi Sunak has emphasised economic recovery as a central theme of the Conservative Party’s general election campaign.
Economic Indicators Align
The latest purchasing managers’ index, a key economic activity indicator, suggests GDP could grow by 0.3 percent in the second quarter.
Inflation saw a significant decline to 2.3 percent in April from 3.2 percent, down from a 42-year peak of 11.1 percent.
Retail sector inflation reached its lowest rate since August 2020, with only slight price increases expected next month.
Consumer Confidence Boost
GfK’s consumer confidence index hit its highest level in over two years.
Alpesh Paleja, the CBI’s lead economist, stated: “Falling inflation and continuing real wage growth will support a healthier consumer outlook.”
The retail surge in May partially stemmed from calmer weather following heavy rainfall in April.
Mixed Signals for the Future
Despite the positive sales figures in May, the Office for National Statistics reported a 2.3 percent contraction in April, the steepest drop this year.
Ruth Gregory, deputy chief UK economist at Capital Economics, suggested this was an anomaly.
The CBI forecasted a slight contraction in sales for the upcoming month.
Employment Concerns
Employment in the retail sector fell sharply in May and is expected to decline further.
Paleja cautioned that retailers are restrained about their business outlook for the coming quarter.
Retailers’ investment intentions have also noticeably deteriorated.
Hopeful Outlook for Recovery
Economists remain hopeful for improvement in retail sales as living standards recover.
Wages have outpaced inflation for nearly a year, although the current parliament is set to be the first on record with declining average household living standards.
GDP per capita has been sluggish over the past two years, but household finances are rebounding from the cost-of-living crisis.
Political Context
Labour holds a 20-point lead over the Conservatives in the polls with the general election scheduled for 4th July.
Paleja concluded: “All parties should use this election campaign to embrace policies for sustainable growth and investment.”
The significant surge in retail sales in May paints an optimistic picture for the UK economy.
However, challenges like declining retail employment and cautious future forecasts remind us that the road to full recovery is not without obstacles.