Business

Retail sales fall in May as prices rise

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Retail sales fell in May as shoppers began to feel the effect of higher inflation.

The Office for National Statistics said the quantity of goods bought between April and May fell by 1.2%, which was worse than economists had expected.

Compared with a year earlier, sales volumes were up by 0.9% - the weakest annual growth rate since April 2013.

The ONS said that higher prices across all sectors "seem to be a significant factor in slowing growth".

Data showed that average store prices rose by 2.8% over the year, which the ONS said was the largest increase since March 2012.

One of the key factors behind the rise in prices has been the fall in the value of the pound since last year's Brexit referendum, which has increased the cost of imports.

Non-food stores were the main contributor to the slowdown after reporting an annual sales fall of 1.2%. However, food retailers reported growth of just 0.1% - the slowest since July 2013.

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Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "It's hard to see the trend in retail sales improving soon. Retailers have not finished yet passing on higher import prices to consumers, wage growth looks set to remain depressed and banks are reporting that they intend to restrict the supply of unsecured credit."

Keith Richardson, head of retail at Lloyds Bank, said: "Shoppers are actually tightening their belts, switching to supermarkets' own-brand products, while the discounters are also enjoying renewed growth.

"They're also prioritising their spending, with non-food sales suffering so that consumers can still afford to put a treat in the trolley when buying their groceries."

Shoppers squeezed

The gap between wages and inflation is continuing to widen.

Data released on Wednesday revealed that average earnings fell in real terms by 0.6% in April compared with same month last year.

Inflation stands at 2.9% - far above the Bank of England's 2% target. The Bank is due to announce its latest interest rate decision at midday.

While it is not expected to make any change to rates, investors will scrutinise the minutes from the most recent meeting of the Monetary Policy Committee for clues about inflation.

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