MNI DATA IMPACT: UK Retail Sales Top Forecasts; Debt Surges

--April Borrowing Revised Downward on Reduced Furlough Scheme Outlays

By Laurie Laird

     LONDON (MNI) - UK debt as a ratio of GDP hit its highest level since 1963,

even as government outlays were revised lower in April, while retail sales rose

by far more than expected in May.

     The following are the main points from the public sector finance and retail

sales reports for May released on Friday by the Office for National Statistics.

     -- Retail sales rebounded by 12.0% in May, far exceeding expectations, as

highlighted in the MNI Reality Check published on Thursday. With the exception

of food stores, all categories of shops recorded double-digit increases, led by

a 42.0% surge in sales of household goods. Clothing retailers also showed signs

of life, with sales volumes rising 17.6%, albeit from a very low base.

     -- Government borrowing surged to GBP55.224 billion in May, a record for

any month, taking borrowing (including the Bank of England) to 100.9% of GDP,

the highest level since the fiscal year ending in March 1963.

     -- However, borrowing in April was revised downward by GBP13.6 billion to

GBP48.499 billion, largely due to smaller-than-expected outlays on the

government's furlough scheme. An ONS official cited OBR analysis suggesting the

scheme may be covering the wages of a higher-than-expected proportion of

lower-paid jobs.

     -- Sales remain 13.1% below the level of February, before the economic

lockdown took effect in late March. On a rolling three-month basis, sales

volumes plunged by 12.8%, the biggest fall on record and the eighth straight

period of no or negative growth, suggesting a weakening retail sector even

before the covid crisis hit.

     -- Borrowing for the 2020/21 fiscal year was revised downward to GBP 56.6

billion from the originally-reported GBP62.7 billion. The new data reflect

incoming cash receipts over the past months, replacing estimates initially used

to compile the full-year data.

     -- Internet sales continued to skyrocket, rising by 19.7% between April and

May (on a value basis) and by 57.9% over May of 2019, taking online transactions

to a record-high 33.4% of total sales. One of the biggest questions on

retailers' minds is whether newcomers to internet shopping will remain wedded to

platforms once a wider range of stores re-open.

     -- Taken together, the data reflect a grim picture of the economy, but a

less severe shock than feared just a few months ago. However, most analysts are

waiting for the expiration of the furlough scheme at the end of September before

assessing the long-term impact of the economic shutdown.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MABDS$,M$B$$$,M$E$$$]