UK Retail Sales Fall as Cost of Living Crisis Hits Food Spending

UK retail sales fell in May as soaring food prices and the wider cost of living crisis forced consumer to cut back on spending.

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(Bloomberg) — UK retail sales fell in May as soaring food prices and the wider cost of living crisis forced consumer to cut back on spending.

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The volume of goods sold in stores and online fell 0.5% from April, the Office for National Statistics said Friday. Economists had expected a decline of 0.7%. Sales excluding auto fuel fell 0.7%.

The drop  — the third in the last four months — was driven by a 1.6% fall in food sales, particularly at large supermarkets, which the ONS linked to soaring prices. Data earlier this week showed overall inflation hit a four-decade high of 9.1% in May.

“Feedback from supermarkets suggested customers were spending less on their food shop, because of the rising cost of living,” said Heather Bovill, the ONS’ deputy director for surveys and economic indicators.

Figures earlier Friday showed higher prices are also weighing heavy on consumer confidence, which dropped to a record low this month. The outlook for stores also looks bleak, with the Confederation of British Industry saying Thursday that retailers were also expecting a poor July.

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‘New Reality’

Taken together, the reports show the deep damage that the fastest inflation rate since the 1980s is having on the economy. With wages failing to keep pace with rising prices, consumer finances are being squeezed and leading to a more gloomy outlook than during the depths of the coronavirus pandemic.

“Britain faces a stark new economic reality,” said Joe Staton, client strategy director at GfK. “History shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough.”

The poor figures for June are particularly bad news for Prime Minister Boris Johnson’s ruling Conservatives, which suffered two bruising defeats in key special elections on Thursday.

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The survey is the first since the government announced a multi-billion pound package of support for households to help them cope with soaring energy bills and the latest drop suggests even that unprecedented aid is not enough to bolster sentiment.

Sales at supermarkets fell 1.5% last month, the ONS said, while sales of tobacco, alcohol and other drinks dropped 4%.

Total sales were 1.3% lower in the three months through May than during the December to February period, suggesting the retail sector will act as a drag on the economy in the second quarter. 

In May, department stores and household goods shops also reported a drop in sales. The decline was partially offset by a increase in spending on motor fuel and clothing and footwear. 

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Consumer Pessimism

Sales in April rose just 0.4%, rather than the 1.4% previously estimated.

Meanwhile, GfK said Friday its measure of consumer sentiment dropped 1 point to minus 41 in June, the lowest reading in the 48 years of the survey. The risk of recession weighed on consumers’ view of the future outlook both for their own finances and the broader economy. 

The prospects of a summer of industrial action and soaring interest rates are also weighing heavily on the mood of the nation, with the Bank of England indicating it is prepared to sacrifice economic growth to lean against higher prices.

With the economy already on track to shrink in the second quarter, the risk is that ebbing confidence weighs further on spending, delivering a recession later this year. More pain also lies ahead, with the BOE predicting inflation will climb above 11%, more than five times its target, as more energy bill hikes kick in come October.

“As essential costs continue to rise, as does the risk that further discretionary goods demand reduces in line with the consistently low levels of consumer confidence that we are seeing,” said Linda Ellett, UK head of consumer markets, retail and leisure at KPMG,

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