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May retail sales defy expectations which could support summer rate rise

Written by: Paloma Kubiak
Retail sales in May increased 1.3% from the previous month and given its strong performance, some analysts suggest this could strengthen the case for an interest rate hike this summer.

Year-on-year sales growth saw a sharp increase of 3.9% when compared to April’s 1.4% figure. Anecdotal feedback from retailers suggest the Royal Wedding and May’s unusually warm weather helped boost the figure.

According to the Office for National Statistics (ONS), non-store retailing showed strong growth when compared to the previous year (16.2%) and the previous month (4.5%).

Online spending for food, department and clothing stores continued to increase to a new record – 5.8% in the year, 17.4% in the month and 17.6% in the three months to May.

Following the publication of the retail sales figures, sterling reacted positively, gaining around half a cent against the dollar.

‘Artisanal shop looks like the future’

Ben Brettell, senior economist at Hargreaves Lansdown, said this is welcome news for the UK economy following recent disappointments, notably from the manufacturing sector.

He said: “Despite today’s positive report from the ONS, news from individual companies continues to paint a somewhat gloomy picture for the UK’s bricks-and-mortar retailers.

“House of Fraser and Poundworld are the latest names to run into trouble. With the most recent set of numbers from online fashion retailer showing a 49% jump in UK sales, it’s not difficult to work out where those high street customers have been going.

“Ted Baker’s results earlier this week were notable for showing some positive growth, but even that was driven by a 33.6% increase in online sales. However, a good result from the UK wholesale business suggests that Ted’s higher price point and quirky style are helping to insulate it from the worst of the downturn.”

Brettell added that names which survive the current turbulence will be those that “treat high street shopping as a pastime rather than an essential”.

“Just as the days of nipping out to the local bakers every morning is a thing of the past, so too is a trip to M&S for a white shirt and packet of socks – the artisanal shop looks like the future of the high street”, he said.

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