June 19, 2014 / 8:36 AM / 6 years ago

UK retail sales fall in May for first time since January

LONDON (Reuters) - Strong sales of replica football shirts last month as the World Cup approached were not enough to save British retail sales from their first drop since January, official data showed on Thursday.

Shoppers walk through a retail centre in Royal Tunbridge Wells, southern England August 15, 2013. REUTERS/Neil Hall

The dip in sales was expected and followed a stretch of robust demand. Sales for the three months to May compared with the same period a year ago rose by the largest amount in nearly a decade.

Retail sales volumes dropped 0.5 percent on the month and grew 3.9 percent on the year, slowing from April’s 10-year high of 6.5 percent, according to the Office for National Statistics (ONS).

Economists had expected retail sales to slip in May after growth in April was boosted by a late Easter holiday, but downward revisions to previous months’ data meant that the annual rise was a little less than the 4.3 percent forecast.

Still, analysts said the overall picture was one of healthy demand for British retail goods.

“Clear of monthly volatility, we think the upbeat prints in retail sales are likely to continue, amid strong job creation, muted price pressures and increased confidence,” said Armela Mancellari, UK economist at Barclays.

Retail sales in the last three months compared with the same period a year ago rose 4.9 percent, the largest increase since November 2004.

Sterling and British government bond prices were little changed by the data.

The ONS said the month-on-month fall would have been even bigger had football shirts not driven strong sales in sports stores. ‘Other stores’ - the category which includes sports goods retailers - were the best performers last month.

CONSUMER-LED RECOVERY

Britain’s consumers have been the main driver of the country’s economic recovery which began last year, but manufacturers have also been doing increasingly well.

The Confederation of British Industry said that industrial orders have grown this month at their fastest rate in six months, and expectations for output growth are well above historical averages.

However, the CBI warned that the greater strength of sterling may limit export growth in future.

“The recent rise in sterling could impact on the resilient export orders we’ve seen lately,” said CBI deputy director-general Katja Hall. “As a result, now is the right time to capitalise on boosting manufacturing further by taking action to strengthen the UK’s supply chains across industry. This will help unlock further growth and increase exports.”

The retail sales data also confirmed the weak inflation pressures shown by consumer price inflation data earlier this week, which hit its lowest level in 4 1/2 years at 1.5 percent.

The retail sales data showed store prices declined 0.7 percent - their biggest drop since September 2009. Much of this was driven by lower fuel prices, but even excluding fuel, store prices fell for the first time since July 2006.

“While this no doubt reflects sterling strength over the past year and a competitive retail environment, it is indicative of the low-inflation environment the UK currently finds itself in,” said Simon Wells, chief UK economist at HSBC.

Inflation data on Tuesday showed annual food prices declined last month for the first time since 2006, which the ONS linked to a price war between major supermarkets.

A separate measure of inflation in the retail sales data also showed the weakest price growth for food since March 2006.

A survey from the British Retail Consortium earlier this month also showed food sales held back retail sales last month after a bumper April.

British grocer J Sainsbury  posted a second straight decline in quarterly underlying sales earlier this month, with discounters Aldi and Lidl taking market share from the middle ground.

Additional reporting by Ana Nicolaci da Costa; Editing by Larry King

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