British retail sales tumble 2.7 per cent in May

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British retail sales suffered their steepest drop in 18 months in May as consumers cut back on purchases of food and household goods.

Friday’s figure from the Office for National Statistics showed sales tumbled 2.7 per cent last month, below the 0.5 per cent decline forecast by economists polled by Reuters and the biggest monthly fall since December 2023.

The drop was led by a 5 per cent fall in sales at food stores and a 2.5 per cent decline in household goods as shoppers pulled back.    

May’s fall is the first this year and followed a 1.3 per cent rise in April, which retailers said was down to unusually sunny weather. Overall retail sales volumes were down 1.3 per cent in May compared with the same month last year.

The first official economic figures for May come amid increasing signs that the economy is cooling after growing 0.7 per cent in the first quarter. On Thursday, the Bank of England held interest rates at 4.25 per cent but signalled its growing concern over a weakening jobs market.

Paul Dales, economist at the consultancy Capital Economics, said: “The sharp drop back in retail sales volumes . . . adds to other evidence that the burst of economic growth in Q1 is over.”

A separate GfK survey of consumer confidence released on Friday showed a small increase to minus 18 in June from minus 20 in May.

The decline in retail sales came as figures published by the ONS on Friday showed the UK government borrowed more than expected in May, as inflation-driven increases in public sector pay offset higher tax receipts.

Borrowing was £17.7bn last month, exceeding the £17.1bn forecast by the Office for Budget Responsibility, the UK’s official fiscal watchdog, and up £700mn from the same month last year.

Public sector spending rose by £6.4bn in May compared with the same month last year, the ONS said. The increase offset a £5.7bn rise in tax receipts during the month, which were partly driven by a £1.8bn increase in employer national insurance contributions.

The increase in employer NICs was announced by chancellor Rachel Reeves in October’s Budget and took effect in April.

But borrowing — the difference between total public sector spending and income — for the first two months of the new tax year was £37.7bn, below the £40.7bn forecast by the OBR.

Reeves is under pressure to meet her fiscal rule to balance day-to-day spending with revenues by 2029-30 while improving public services and spurring growth.

Last week she unveiled a spending review, with the NHS receiving a £29bn annual boost and other areas of day-to-day spending set for cuts, as the chancellor insisted her rules were “non-negotiable”.

Responding to Friday’s figures, Darren Jones, chief secretary to the Treasury, said: “Last week’s spending review showed how we are investing in the UK’s security, health and the economy through our Plan for Change, so that people are better off.”