U.K. Retail Sales Rise More Than Forecast After April Slump

U.K. retail sales rose more than economists forecast in May, recovering some of the ground lost the previous month when poor weather damped demand.

Sales including auto fuel gained 1.4 percent from April, the Office for National Statistics said today in London. The median forecast of 20 economists in a Bloomberg News survey was for a 1.2 percent increase. Retail sales fell a revised 2.4 percent in April, curbed by the wettest April on record. Excluding fuel, sales increased 0.9 percent in May.

While easing inflation is easing the squeeze on Britons’ incomes, the government’s austerity plan and Britain’s relapse into a recession are undermining confidence. Bank of England Governor Mervyn King was overruled in his call for more stimulus this month, as he warned the euro-region crisis was a “black cloud” darkening the prospects for the U.K. economy.

“With inflation falling, consumers have got more purchasing power and May wasn’t as much of a washout weather wise,” said Alan Clarke, an economist at Scotia Capital in London. Still, “there’s clearly an overhang, a dark cloud on confidence. The euro crisis is clearly depressing business sentiment both on the continent and here”

The pound pared its decline against the dollar after the data were published. It traded at $1.5697 as of 9:33 a.m. in London, down 0.1 percent from yesterday.

Fuel Sales

In May, sales of clothing and shoes rose 3.4 percent from the previous month, the statistics office said. Household good sales increased 0.7 percent, while fuel sales surged 6.2 percent. From a year earlier, overall sales were up 2.4 percent.

In the three months through May, sales rose 0.5 percent from the previous three months. Excluding auto fuel, retail sales gained 0.9 percent in May from April and were up 3 percent from a year earlier.

U.K. inflation slowed to 2.8 percent in April, data this week showed. Consumer prices are still rising twice as fast as annual pay, while unemployment claims unexpectedly rose in May, underlining the fragility of Britain’s labor market.

According to today’s report, shop prices as measured by the retail sales deflator rose an annual 0.9 percent in May, the least since October 2009. The deflator on food prices was 3 percent, down from 3.7 percent in April.

J Sainsbury Plc (SBRY), the U.K.’s third-largest supermarket company, said on June 13 that sales growth slowed in the first quarter, with Chief Executive Officer Justin King saying “the market conditions reflect the tough challenges consumers face.”

Bank of England policy makers split 5-4 at their meeting this month when they kept their bond-purchase target unchanged at 325 billion pounds ($509 billion). Still, most officials “judged that some further economic stimulus was either warranted immediately or would probably become warranted to meet” the 2 percent inflation target, according to the minutes of the meeting, published yesterday.

The central bank also said that the “risks to U.K. and global activity from financial distress and political tension within the euro area had intensified again.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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