May 18, 2017 / 8:36 AM / a year ago

UK shoppers shrug off inflation pressure as sun comes out

LONDON (Reuters) - British shoppers set aside their concerns about fast-rising inflation following the Brexit vote and stepped up spending last month at the fastest rate in years, encouraged by fine weather, official data showed.

A woman buys produce at a market stall in London, Britain May 16, 2017. REUTERS/Neil Hall

The unexpectedly strong figures suggest that - at least temporarily - consumers’ mood has become more upbeat in the run-up to a June 8 national election that Prime Minister Theresa May’s ruling Conservatives are tipped to win by a wide margin.

Retail sales volumes jumped by 2.3 percent on the month in April, the Office for National Statistics said on Thursday, beating the median forecast for a 1.0 percent rise in a Reuters poll of economists.

The robust data contrasts with a generally downbeat tone so far this year, as a pick-up in inflation triggered by the fall in the pound after last year’s Brexit vote ate into households’ disposable income.

The rebound followed a sharp 1.4 percent fall in March that capped the weakest calendar quarter since 2010.

Prices are displayed on a store window in London, Britain May 16, 2017. REUTERS/Neil Hall

“April’s sharp rebound in retail sales ... buoys hopes that consumer spending will not hamper UK GDP growth as it clearly did in the first quarter,” said Howard Archer, chief UK economist at IHS Markit.

Looking at the value of retail spending - which adds in the extra amount shoppers spend because of higher inflation - sales in the three months to April were up 6.2 percent on a year earlier, the biggest rise in 15 years.

Sterling rose almost half a cent against the U.S. dollar GBP=D4 after the data, rising above $1.30 for the first time in almost eight months, and British government bond yields fell to a one-month low.


The ONS said retailers reported that fine weather had boosted demand. An official said it was too soon to tell if inflation pressures would weigh on consumers again quickly.

“We need a longer series to properly determine a pattern,” the official said.

Retail sales volumes were 4.0 percent higher than a year earlier after 2.0 percent annual growth in March, again beating forecasts in a Reuters poll for a 2.1 percent rise.

The ONS said the figures were seasonally adjusted to take account of the timing of Easter, but many economists doubted the adjustment was sufficient.

“Today’s upside surprise will probably mean that almost every City forecaster will be looking for payback in next month’s May figures, particularly if Easter or weather distortions played a sizeable role in today’s good news,” George Buckley, an economist at Nomura, said.

The strong retail sales tally with figures from the Confederation of British Industry, which said retailers reported rapid sales growth during the first part of April.

But British retailers have reported mixed fortunes. Earlier this month Next (NXT.L), Britain’s most successful clothing chain in recent years, lowered its annual profit forecast, counting the cost of tough trading conditions and self-inflicted problems with its product ranges.

Official figures on Wednesday showed that average wages in Britain are now rising by less than inflation for the first time since 2014.

The Bank of England expects a shortfall in consumer demand this year which will be mostly offset by stronger exports and business investment. Many private-sector forecasters are more doubtful and see a bigger slowdown this year and next.

Reporting by David Milliken; Editing by Gareth Jones

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