June 20, 2019 / 8:42 AM / a month ago

Cool weather hits UK retail sales in May in gloomy sign for economy

LONDON (Reuters) - Cold weather in May prompted the biggest drop in British retail sales this year as shoppers delayed buying summer clothes, adding to signs that the economy, struggling for momentum ahead of Brexit, is set for a weak second quarter.

FILE PHOTO: A pedestrian walks towards a shop displaying a sale sign, in central London, Britain December 28, 2018. REUTERS/Peter Nicholls/File Photo GLOBAL BUSINESS WEEK AHEAD

Monthly retail sales volumes contracted 0.5%, the Office for National Statistics said, as expected in a Reuters poll of economists and following a 0.1% fall in April.

Compared with May 2018, sales rose by the least since October last year, up 2.3%. The Reuters poll had pointed to growth of 2.7%.

The second consecutive monthly slide in retail sales does not bode well for overall growth in the second quarter for an economy which is struggling with Britain’s Brexit crisis as well as a slowdown in growth globally.

Official data has shown the economy contracted sharply in April, adding to reasons why the Bank of England is likely to keep interest rates on hold when it announces its June policy decision at 1100 GMT.

Sterling and British government bonds showed little reaction to the retail sales data.

“Although earnings continue to outstrip inflation, a second stutter in as many months will serve as a stark reminder that the retail sector’s recent growth should not be taken for granted,” Philipp Gutzwiller, head of retail at Lloyds Bank Commercial Banking, said.

Until now, consumers have largely taken Brexit in their stride, helped by stable inflation and stronger growth in wages.

That has helped the world’s fifth-biggest economy at a time when many companies have been cutting back on investment because of uncertainty about Brexit.

The ONS said unseasonably cold weather hit demand for clothing and footwear sales, which fell 4.5% on the month — the biggest drop since July 2015.

“We see quite a mixed picture across the rest of the sector as the decline in department store sales continued (in the three months to May), with no growth since September of last year,” ONS statistician Rhian Murphy said.

Underlining the squeeze on retailers’ profit margins, sales in value terms rose only 2.7% in the year to May, the smallest rise in nearly three years.

Retailers themselves have reported mixed fortunes of late.

Earlier on Thursday, Dixons Carphone, Britain’s biggest seller of electricals and mobile phones, reported a 22% fall in full-year profit, reflecting falling mobile sales in a tough market, and warned of another big decline in the current year.

Fashion brand Ted Baker this month reported an “extremely difficult” start to the year, although online fashion group Boohoo bucked a tough retail market with robust sales growth.

Editing by Jane Merriman

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