Muted ‘Mega May’ for retailers as fuel sales hide lacklustre growth

23 June 2023

The latest ONS figures show retail sales volumes have increased by 0.3% in May 2023. However, when excluding the increase in fuel sales of 1.7%, overall growth in sales rose by only 0.1%.

Non-store retailing was up 2.7% as the warmer weather encouraged online purchases of garden furniture and summer wardrobes. On the flip side, food inflation played a part in the 0.5% drop in food sales.

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘Unfortunately, it was a muted ‘Mega May’ for retailers which didn’t quite deliver the uplift they were hoping for. The weather was a mixed bag which will have dampened demand, and the three bank holidays encouraged people to get out and socialise rather than shop. Online sales performed well this month, but in-store shopping should become more popular as consumers look for a bargain.

‘Despite the King’s Coronation and the extra bank holidays, high food inflation has meant food sales suffered as consumers are being forced to reduce the size of their grocery basket. 

‘Retail sales, excluding fuel, have fallen 3.6% in the first five months of the year from the same period in 2022, suggesting the rest of the year will be challenging for retailers. Yesterday’s interest rate rise will be another thorn in the side of retailers as it will hit consumers’ pockets and impact on their spending. As we head into summer, retailers will be looking for a silver lining to boost sales but it’s likely to be a bumpy few months as consumers feel the pinch even more.’

Thomas Pugh, economist at RSM UK, added: ‘The 0.3% m/m rise in retail sales volumes including fuel underscores the current resilience of the economy and the Bank of England felt it necessary to raise interest rates by 50bps yesterday. 

‘The outlook for consumer spending and retail sales over the next year is mixed. On the one hand, strong wage growth and falling inflation, especially energy prices, will mean that households’ real incomes start to rise again in the second half of this year and through 2024. On the other hand, the surge in mortgage rates to more than 6% will cause significant amounts of pain for the roughly 2m households due to remortgage over the next eighteen months. 

‘In aggregate, we think these two effects will largely offset each other meaning that a continuation of the recent muted growth we have experienced of 0.1% or 0.2% a quarter is the most likely outcome. However, it wouldn’t take much to tip the economy into recession. Indeed, if interest rates do rise to 6% as expected by financial markets, that would be enough to cause a moderate recession and a further fall in retail sales.’