Market News

(Bloomberg) -- UK retail sales rebounded unexpectedly strongly in May while previous months were revised higher in a sign of consumer resilience that offers hope for the wider economy.

The Office for National Statistics said the volume of goods sold online and in stores surged 1.2%, after a revised 1% drop in April, when families were reeling from high fuel prices.

It was the sharpest rise since January, and much better than the 0.5% increase expected by economists. The ONS said promotions and hot weather helped to boost sales in May, with department and household goods stores performing strongly.

The figures suggest the British consumer may be holding up better than expected against the surge in energy prices caused by the war in Iran.

The pressure on household finances is also now expected to be less severe than feared with economists predicting a much lower peak in inflation should the US-Iran truce hold. While consumers will be hit by a 13% increase in the UK’s energy price cap in July, sharp falls in crude in recent weeks are likely to feed into petrol costs.

It could result in a brighter economic inheritance for any successor to Keir Starmer as rivals circle the embattled prime minister. The data arrived on a morning of high political drama in the UK, where Greater Manchester Mayor Andy Burnham won a special parliamentary election — a necessary step before he can challenge Starmer to become the next premier.

Separate ONS numbers on Friday underscored the fiscal constraints likely to encumber any successor, with rising debt interest costs resulting in the highest government borrowing for any May since the pandemic.

A GfK report overnight suggested the conflict is continuing to weigh on households. Consumer confidence in June remained below levels seen before the conflict, with sentiment among young Britons falling to the lowest in two years.

Rob Wood, chief UK economist at Pantheon Macroeconomics, and a former Bank of England official, still highlighted the positives from evidence of robust shopping.

“May’s rebound in retail sales was helped by the weather but also shows consumers have been surprisingly resilient,” he said in a report. “Households have been treating higher energy prices as a temporary state of affairs that they can smooth their spending through.”