Pre-World Cup spending fires up May retail sales

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The Independent Online

Retailers gave the Chancellor, George Osborne, a fillip ahead of next week's Budget, reporting yesterday that sales in May were significantly better than expected, thanks to a surge in demand for electrical goods before the World Cup. Sunny weather later in the month also drew more shoppers to Britain's high streets.

Retail sales volumes rose by 0.6 per cent between April and May, the Office for National Statistics said, which was six times better than the 0.1 per cent growth economists had expected.

The uplift should boost gross domestic product (GDP) for the second quarter, given that about one third of consumer spending in is shops, and offers welcome news for Mr Osborne before Tuesday's emergency Budget. Retail sales volumes were 2.2 per cent higher last month than in May 2009. Sales by value, which include price rises, were up 4.4 per cent year on year.

Howard Archer, the chief European economist at IHS Global Insight, described the sales increase in May as "perky", adding: "It looks like consumer spending is on course to make a decent contribution to GDP growth in the second quarter."

In May, GDP growth for the first quarter was revised upwards by 0.1 per to 0.3 per cent. But last month's stronger-than-expected rise in retail sales was flattered by the ONS revising down April's data from growth of 0.3 per cent to flat. Economists also cautioned on the outlook for consumer spending, given the austerity measures to be unveiled in next week's Budget.

Vicky Redwood, of Capital Economics, said: "With consumer confidence about to be hit by tax rises and cuts in public-sector employment and wages, we doubt this resilience will last.

"Indeed, recent falls in consumer confidence are already ringing alarm bells. We still think the consumer outlook remains pretty bleak."

In May, shops selling household goods were the engine room of growth. They reported a 1.7 per cent rise in sales, which the ONS said was driven by strong demand for new television sets from football fans preparing to watch the World Cup.

Earlier this week, Tesco said its sales of large TVs had been "strong", with premium brands up by more than 100 per cent in its first quarter.

The World Cup and warm weather in May also helped grocers to achieve a 1 per cent increase in sales. But sales at predominantly non-food stores remained flat. Worse still, sales at textile, clothing and footwear shops tumbled by 1.3 per cent, while those at other stores fell by 0.8 per cent.

The ONS data are broadly similar to recent figures from the British Retail Consortium (BRC). A BRC/KPMG survey said UK sales at shops open for more than a year rose by 0.8 per cent May, following a drop of 2.3 per cent in April, which was distorted by the first two days of the Easter bank holiday falling into the March data.

Tough trading conditions on UK high streets were laid bare by three-month data from the ONS. Compared to the previous quarter, retail sales volumes rose by 1 per cent between March and May and were up 1.7 per cent on the same quarter last year.