Rebound in UK retail sales signals solid second quarter

British retail sales bounced back much more than expected in May, adding to evidence of accelerating economic growth in the second quarter and easing some of the pressure on the central bank to boost the economy.

The Office for National Statistics said today sales volumes grew 2.1 per cent on the month, after posting the sharpest fall in a year in April. May’s rise was the biggest since February. Compared with a year earlier, sales rose 1.9 per cent, again the fastest increase since February.

The pound pared losses against the dollar while British government bonds fell further, as the release backed views the Bank of England is unlikely to ease monetary policy soon.

However, some economists questioned whether the latest figures pointed to a broad-based return to health and said they still left open the possibility that incoming BoE governor Mark Carney will push for another cash injection for the economy after he takes over from Mervyn King next month.

“I wouldn’t view these data as being inconsistent with calls for more stimulus in the UK,” said David Tinsley, economist at BNP Paribas.

“There is a genuine debate to be had as to whether the second-quarter figures are part of a sustained recovery or just in some respects an erratically strong quarter,” he added.

Retail sales were mainly lifted by discounting at supermarkets and online shopping, the ONS said. Food sales grew by 3.5 per cent from April, the strongest rise in two years, while non-store retailing grew by 4.3 per cent.

The overall sales figures were also flattered by a poor showing in April, when unseasonably cool weather dented demand.

“Either there was a big influence from the poor weather, the timing of Easter caused some distortions or the whole country was on a crash diet in April,” said Alan Clarke at Scotiabank.

Consumers’ willingness to spend will largely determine whether the British economy can build on signs of a recovery, such as strong industry surveys, and achieve solid expansion after two years of stagnation.

Mr King cautioned late yesterday that “adequate” growth was not yet assured and that the economy needed more support from the central bank, although a slow recovery appeared underway.

Pointing to Britain’s patchy economic activity, industry data showed today that British car production fell 8.4 per cent in May from a year ago due to weak euro zone demand.

Some economists also raised doubts that retail sales can maintain the current pace of growth, with wage growth still far behind inflation.

Reuters