U.K. Retail Sales Fall as Food Spending Moves to Restaurants

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U.K. retail sales fell unexpectedly in May as the reopening of restaurants and bars prompted consumers to cut spending at supermarkets.

“Following a sharp increase last month coinciding with post-lockdown reopening, retail sales dipped slightly in May,” Darren Morgan, director of economic statistics at the Office for National Statistics, said Friday. “However, they remain well above both their pre-pandemic levels and those seen in March before shops reopened.”

The figures will do little to shift the impression that the U.K. is bouncing back strongly from its worst slump in three centuries. The recovery is being powered by consumers, who built up huge savings in the absence of opportunities to spend while much of the economy was closed.

The CBI, the nation’s biggest business lobby group, revised up its forecasts for growth this year to 8.2% from 6% and expects a 6.1% expansion in 2022, quicker than the pace predicted by the government’s Office for Budget Responsibility. Tesco Plc, the nation’s biggest supermarket, said sales in the U.K. and Ireland rose 1.3% in the latest quarter even as bars and restaurants reopened.

“There are really positive signs about the economic recovery ahead this year and next,” said CBI Director-General Tony Danker. “The data clearly indicates that there is pent up demand and ambition across many sectors.”

U.K. Retail Sales Fall as Food Spending Moves to Restaurants

The volume of goods sold in stores and online fell 1.4%, according to Office for National Statistics figures published Friday. That followed an unprecedented 9.2% surge in April, when non-essential stores welcomed back customers after months of lockdown to tackle the coronavirus. Economists had expected a 1.5% gain.

Food sales dropped a record 5.7% while shops selling household goods and garden equipment did well. Online sales declined for a third month as physical stores reopened but remain 60% higher than in February 2020 before the pandemic hit the U.K. Hospitality businesses were allowed to serve to customers outside from mid-April and indoors from May 17.

The retail sales report also showed:

  • Sales excluding auto fuel fell 2.1%, and fuel sales rose 6.2%
  • Non-food sales climbed 2.3%, with declines at department stores and clothing shops offset by a 9% increase in sales of household goods
  • Total sales in the three months through May were 8.3% higher than in the previous quarter
  • The portion of sales online fell to 28.5% in May from 29.8% the month before
  • Retail sales in May were 9.1% above their pre-pandemic level in February 2020
U.K. Retail Sales Fall as Food Spending Moves to Restaurants

The Bank of England is optimistic about the prospects for the economy, predicting the biggest spending boom since the 1980s when Margaret Thatcher was prime minister. The willingness of consumers to splash out drove inflation to its highest level in almost two years last month.

However, the BOE’s forecast predated the government extending the final stage of lockdown restrictions in response to rising cases of the Covid-19 variant first detected in India. The risk is that consumers curtail their spending amid concerns that the rules could tighten.

The reopening of stores is a major boost for a part of the economy that has been harder hit than most. Footfall remains down on pre-pandemic levels, but less than 4% of the wholesale and retail sector is now furloughed, high-frequency data show.

U.K. Retail Sales Fall as Food Spending Moves to Restaurants

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