UK Retail Sales Plunge Amid Inflation Hit

UK retail sales saw a sharp decline last month, with supermarkets reporting particularly poor results, according to the Office for National Statistics (ONS). Retail sales volumes fell by 2.7% in May, marking the steepest monthly drop since December 2023. The ONS highlighted that spending on alcohol and tobacco was notably lower, suggesting that consumers have started cutting back on non-essential items due to financial pressures.

This decline follows a 1.3% rise in April, which had been supported by unusually sunny weather that encouraged more consumer spending. Despite the drop in May, sales volumes over the three months to May were still 0.8% higher than the previous three months—an indicator seen as more reflective of underlying trends.

The fall in consumer spending comes amid signs that inflation is weighing on household budgets. Retailers have reported that rising prices are causing shoppers to reduce their purchases. Paul Dales, chief UK economist at Capital Economics, noted that the data adds to other signs that the early-year economic rebound may already be waning. While the weather-related boost in April played a role, underlying weakness is becoming more evident.

In addition to weak retail performance, the ONS also released figures showing that government borrowing rose to £17.7 billion in May—£0.7 billion more than in the same month last year. This marks the second-highest borrowing level for May since monthly records began in 1993. Although revenue from income tax and National Insurance contributions increased, overall government spending outpaced income. The rise in spending was partly attributed to inflation-linked increases in various state benefits.

Together, these figures paint a picture of growing economic strain, with both consumers and the government feeling the impact of persistent inflation and slowing momentum in the broader economy.