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Business News

Weak retail sales cast cloud over economy

UK retailers will today reveal lacklustre underlying sales growth for May, stoking fears that the fragile recovery in consumer spending may run out of steam after this month's emergency Budget.

The annual rate of retail sales at shops open more than one year grew by 0.8 per cent in May, following a fall of 2.3 per cent in April, which was distorted by the timing of Easter, a survey by the British Retail Consortium (BRC) and KPMG found.

But the subdued spending environment was highlighted by retailers being up against weak figures in May 2009, when like-for-like sales fell by 0.8 per cent. Total sales, including new stores and extensions, rose by 3 per cent last month.

Stephen Robertson, the director general of the BRC, said: "There is still plenty of uncertainty, which is making customers nervous about buying expensive goods, such as furniture, despite widespread reductions. This month's emergency Budget should provide more clarity."

Furniture and floor-covering retailers were the worst performers in May, as concerns over household budgets hit spending on big-ticket items. But grocers returned to growth last month after sales in April were dented by the Easter bank holiday starting in March.

Footwear and clothing also notched up gains, boosted by the sunshine in the second half of the month, although women's clothing lagged behind this sector as a whole. Retailers of televisions received a pre-World Cup sales boost, although the BRC said this was largely driven by discounts.

Store groups are worried about the impact of the spending measures, particularly a hike in VAT, that the Government will introduce to slash the public sector deficit in the Budget on 22 June.

Helen Dickinson, head of retail at KPMG, said: "The election campaign did not shift consumer spending patterns much either one way or the other, but whether the forthcoming Budget will be more damaging remains to be seen. Many retailers remain reliant on promotional activity to drive footfall and sales."