May heatwave sparks retail spending but caution remains
The latest ONS retail sales figures show volumes increased by 1.2% in May, driven by non-store retailing (up 6.1%) and household goods (up 3.2%).
Jacqui Baker, head of retail at RSM UK said: “The heatwave in May helped to boost consumers’ moods and their willingness to spend. Summer essentials including outdoor furniture were the biggest winners as households upgraded their barbeques and soaked up the sunshine.
“Household electrical goods jumped 8.3% as consumers invested in fans to cool down and TVs ahead of the World Cup to prepare for watch parties at home.
“While it’s positive to see an uplift in retail sales and consumer confidence remained steady at -23 in June, there’s still a lot of uncertainty and caution among households. The start of the World Cup should help to lift spirits and will go some way in encouraging people to spend, but what’s desperately needed is greater certainty.
“If the deal between the US and Iran holds up, and oil and fuel prices continue to come down, lessening the risk of interest rate hikes, this should provide a slightly better outlook for consumer spending.”
Thomas Pugh, chief economist at RSM UK, added: “There was little sign of the Iran war impacting consumer spending in May and the stability of consumer confidence in June suggests there won’t be much impact this month either. Of course, a dose of nice weather will go a long way in offsetting most Brits’ worries about anything else, but the US-Iran deal and the subsequent drop in oil prices will remove much of the downside risk we had been building in for the rest of the year.
“That said, the outlook still isn’t a rosy as we were anticipating at the start of the year. Even with the drop back in oil prices, inflation will still probably peak at around 3.5% this year. Combined with the weakness in the labour market and slow pay growth, real incomes look likely to stagnate over the rest of the year.
“In addition, the prospect of a new team in Downing Street has risen significantly with Andy Burnham’s victory in Makerfield yesterday. That raises the risk of another big tax raising budget later this year, which would sap confidence, potentially push up borrowing costs and drag on spending.
“However, the data suggests there has been little impact on spending so far from the Iran war. Assuming the recent deal holds, this should remove much of the downside risk we had been factoring in, leaving the picture considerably rosier than we were anticipating a month ago.”