U.K. Retail Sales Rise More Than Forecast on Food, Internet

U.K. retail sales rose more than economists forecast in May as consumers spent more online and food sales increased at their fastest pace for more than two years.

Sales including auto fuel jumped 2.1 percent from April, when they fell 1.1 percent, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg News survey was for a 0.8 percent increase

The data add to signs the economic recovery is taking hold, though consumers remain under pressure as inflation outpaces pay growth and government spending cuts bite. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King highlighted the fragility of the recovery yesterday, with King saying there was a “powerful” case for more stimulus.

“A recovery in the U.K. economy may be taking root,” Martin Beck, an economist at Capital Economics Ltd. in London, said in a note. “Retail sales may provide a modest boost to growth in the second quarter.”

The pound was little changed after the report and was trading at $1.5455 as of 9:44 a.m. in London, down 0.2 percent on the day.

Sales volumes stood at a record last month, driven by a 3.5 percent gain in food sales, the most since April 2011, and a 4.3 percent jump in non-store retailing, which includes Internet sales, the ONS said. Sales of fuel rose 1.7 percent. Sales of clothing and household goods also increased. Excluding motor fuel, retail sales rose 2.1 percent in May and were up 2.1 percent on the year.

‘Faintest Glimmer’

Overall retail sales rose 1.9 percent on the year. In the latest three months, they climbed 0.7 percent from the previous quarter.

Dixons Retail Plc, the largest U.K. electronics retailer, today reported a profit gain that beat estimates. Chief Executive Officer Sebastian James said he’s seeing the “faintest glimmer” of improvement, with shopper numbers and average prices both rising.

The retail-sales deflator showed prices rose 0.2 percent on the month and were up 0.9 percent on the year, the ONS said.

With consumer prices rising three times faster than wages and the government cutting benefits to tackle the budget deficit, Britons are seeing an unprecedented squeeze on living standards. Consumer spending rose the least for 1 1/2 years in the first quarter.

The Bank of England governor used his final policy-setting meeting this month to maintain his unsuccessful push for more quantitative easing. In his annual Mansion House speech to financiers yesterday, he said a modest recovery was under way, though it is not strong enough to absorb spare capacity in the economy and there was a case for more stimulus in the short run.