UK DATA IMPACT: Retail Sales Set To Drag on Q2 GDP

By Les Commons and Laurie Laird

     LONDON (MNI) - The UK consumer appears to be showing signs of caution, as

weak retail sales in April and May suggest the sector may impact negatively on

second quarter gross domestic product.

     The following are the salient points from May's official retail sales

report, released on Thursday at the Office for National Statistics.

     -Retail sales volumes fell by a more-than-expected 0.5% in May, while

April's transactions were revised to show a 0.1% decline, down from the original

calculation of no change.

     - That means that retail activity is poised to exert a negative effect on

total growth in the second quarter. Sales must rise by a whopping 3.1% in June

for the retail sector to match its performance over the first quarter, a gain

not achieved in well over three years

     - Clothing and footwear sales slumped by 4.5% in value terms in May, the

sharpest fall in more than three years, accounting for the bulk of retail

weakness. However, physical retailers' laments of a shift to online sales were

not necessarily reflected in Thursday's data, with online sales - in value terms

- falling by a seasonally-adjusted 1.5% last month.

     - Retail price pressures remained subdued. The implied deflator edged up to

an annual rate of 0.4% in May, from an Easter-promotion-depressed 0.2% in April.

The deflator has hovered below an annual rate of 1.0% since last November.

     - The Bank of England's Monetary Policy Committee are likely to have

considered survey evidence in the retail sector at its deliberations on

Wednesday, including the biggest decline in the BRC-KPMG index since records

began (excluding for Easter variations).

     - With consumer spending beginning the flag, and business investment under

pressure due to Brexit uncertainty, the Bank may struggle to convince the

markets of the efficacy of a medium-term rate hike, as suggested by top BoE

officials ahead of Wednesday's meeting.

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

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