A pedestrian looks at his mobile phone as he sits with a shopping bag on Oxford Street in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

U.K. Retail Sales Decline as Households Keep a Lid on Spending

(Bloomberg) -- The evidence is mounting that U.K. consumers are reining in spending.
Retail sales fell for the fourth time in five months on a like-for-like basis in May, according to the British Retail Consortium and KPMG. The 0.4 percent annual drop followed a surge in April, when the figures were distorted by the timing of the Easter holiday. Total sales gained just 0.2 percent.

“With inflation continuing to rise and wage growth stagnating, consumers are starting to feel the pinch,” said Paul Martin, U.K. Head of Retail at KPMG. “After the surge in retail sales last month -- the by-product of this year’s relatively late Easter -- retailers have been brought back down to Earth with a thump.”

The figures highlight the challenge of managing an economy under strain from the U.K.’s vote to leave the European Union last year, a key issue facing the new government after the general election on June 8. The pound’s decline since the referendum has pushed up inflation while wages have failed to keep up.

Food Prices

Consumers are being forced to spend more on food and have cut back on non-essential items, the report said. Some temporary factors like the delayed timing of mid-season sales could push purchases into June, and the weather could have been more helpful in inspiring shoppers, the report said.

Consumer spending growth fell to a 10-month low in May, according to Barclaycard data. More than half of households said they are “feeling the squeeze” from inflation, according to the card provider and YouGov’s survey of around 2,000 adults.

Still, starting salaries are rising, according to a separate report from the Recruitment and Employment Confederation and IHS Markit. Salary gains accelerated to the joint-highest level in 14 months, they said, boosted by skills shortages and a high level of vacancies.

Demand for staff was highest in engineering, nursing, medical and care professions, and computing. Those skills shortages will be another challenge facing the government after the election, the REC said. Prime Minister Theresa May has pledged to take the U.K. out of the single market to reduce migration, which could exacerbate the problem.

With unemployment at its lowest level in decades and EU citizens leaving the U.K., “employers seeking to fill vacancies are running out of options,” said Tom Hadley, Director of Policy at the REC. “These figures clearly show that in many sectors we need more, not fewer people.”