Weather warms up UK retail sales in May in boost for economy

By Suban Abdulla

LONDON, June 19 (Reuters) - British consumers did more shopping in May and April's sharp drop was revised up as hot weather boosted sales of summer items like fans and paddling pools, data showed on Friday, suggesting households were shrugging off inflation concerns.

Sales volumes in May rose 1.2%, the Office for National Statistics (ONS) said, well above economists' forecasts for a 0.5% increase in a Reuters poll. A 1.3% drop in monthly sales in April, when fuel costs jumped due to the Iran war, was revised to a smaller 1.0% decline.

Compared with a year earlier, volumes were 3.2% higher in May, against economists' expectations for a 1.9% rise.

"May's rebound in retail sales was helped by the weather but also shows consumers have been surprisingly resilient to higher energy prices," said Rob Wood, chief UK economist at Pantheon Macroeconomics.

"Looking across the soft and hard data, we are led to the conclusion that households have been treating higher energy prices as a temporary state of affairs that they can smooth their spending through."

CHALLENGES REMAIN DESPITE SALES JUMP

Sterling was little changed against the U.S. dollar after the figures were published on Friday.

The retail sales data was published after Labour mayor Andy Burnham won a key parliamentary election that clears the way for him to challenge Prime Minister Keir Starmer, potentially ushering in a new bout of political instability.

Excluding petrol, overall sales volumes were also up 1.2% in May after contracting by 0.1% in April, and rose 4.6% in annual terms, helped by strong demand for clothing and online sales.

Department stores posted their largest three-month rise since September 2024, and industry analysts said retailers were focusing on tempting shoppers with seasonal promotions.

"Retailers are trying to keep prices low for customers despite ongoing cost pressures, using promotions and a strong focus on value. With the World Cup and the busy summer shopping season ahead, they will be hoping this helps continue the momentum," Sandra Prince, head of consumer at Lloyds Bank, said.

Earlier on Friday, however, a survey showed that while consumer confidence held steady in June, younger people were the least optimistic in two years about the economy and their personal finances. Households as a whole were the least willing to make big item purchases since January 2025.

Major British retailers have said the Middle East conflict is still creating uncertainty for consumers. They have cited grounds for optimism following U.S. President Donald Trump's interim deal with Tehran, but continue to monitor the impact on their costs.

Supermarket groups Tesco and Morrisons both reported a slowdown in sales growth since the start of the conflict.

ECONOMY SHRANK IN APRIL

Britain's economy contracted for the first time in monthly terms since August in April, figures showed last week, but the Bank of England this month nudged up its forecast of underlying quarterly growth for the current quarter to 0.2% from 0.1%.

The BoE held interest rates at 3.75% on Thursday, but two of its policymakers voted for a quarter-point hike.

Financial markets price in only a 15% chance that the BoE will raise rates by a quarter-point next month, and do not fully price in a quarter-point hike until December.

Separate ONS data, published on Friday, showed Britain ran a larger-than-expected budget deficit in May as higher inflation pushed up the cost of servicing inflation-linked debt.

(Reporting by Suban Abdulla; additional reporting by James Davey; Graphic by Pasit Kongkunakornkul; Editing by Sarah Young and Helen Popper)