Sales in the shopping streets increase in May

Retail sales saw their biggest growth in a year and a half in May, signaling a revival of consumer activity on the high street amid improving economic conditions and better weather.

The Confederation of British Industry (CBI) reported that the weighted balance of retail sales rose to 8 per cent in the year to May, up sharply from minus 44 per cent in April, marking the strongest performance since December 2022.

This robust retail performance complements other data suggesting the UK economy has continued its growth trajectory after emerging from recession earlier this year. Prime Minister Rishi Sunak has highlighted economic recovery as a central theme in the Conservative Party's general election campaign.

The latest purchasing managers' index, a key indicator of economic activity, suggests that GDP could grow by 0.3 percent in the second quarter of the year. In addition, inflation fell from 3.2 percent to 2.3 percent in April, down significantly from a 42-year peak of 11.1 percent.

The CBI noted that inflation in the retail sector has slowed to the lowest level since August 2020, with prices expected to rise only slightly faster next month. This trend suggests that headline CPI inflation could decline further in May.

GfK's consumer confidence index, a long-standing measure of public sentiment, has reached its highest level in more than two years.

CBI Chief Economist Alpesh Paleja said: “The increase in retail sales in May adds to the flow of data pointing to an improvement in activity in the near term. Falling inflation and continued real wage growth will contribute to a healthier consumer outlook, which will in turn further support the retail sector.”

The boost to retail sales in May is partly attributed to calmer weather following April's heavy rains. However, the Office for National Statistics recently reported a 2.3 percent contraction in April sales, the sharpest decline this year, which Ruth Gregory, deputy chief Britain economist at Capital Economics, said was an anomaly.

Despite the positive sales figures, the CBI predicted a slight decline in turnover for the coming month. Retail employment also fell sharply in May and is expected to decline further.

Paleja warned: “Retailers are cautious about their business situation in the coming quarter. Overall sales are expected to decline slightly next month, and it is worrying that retailers' investment intentions have noticeably deteriorated.”

Economists remain hopeful that retail sales will improve as living standards recover, with wages outpacing inflation for nearly a year. However, the current parliament will be the first parliament where the average living standard of households has fallen. GDP per capita has been sluggish over the past two years, and household finances are still recovering from the cost of living.

Paleja concluded: “All parties should use this general election campaign to embrace policies that will anchor sustainable growth, promote the investments we need to develop a labor market that delivers higher living standards, and accelerate our transition to net zero will accelerate.”

Labor has a 20-point lead over the Conservatives in the polls with the general election taking place on July 4.

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