High street fails to cash in on bank holidays as interest rates bite
Retail sales have slumped for the first time in more than two years, in a sign that higher interest rates are starting to take their toll on the real economy.
Rising mortgage repayments were blamed for the 1.5pc slump in like-for-like retail spending in May, as consumers tighten their belts.
New figures from advisory firm BDO showed that online sales fell by 3.3pc last month in what was described as one of the worst sets of results on record. In-store sales rose by 1pc.
The overall slump came despite Britain enjoying three bank holidays last month, which typically boost sales. It followed warnings from one of the country’s leading business groups that Britain’s economy is “flatlining”.
The British Chambers of Commerce (BCC) on Thursday evening upgraded its forecasts for GDP growth this year to 0.3pc, but said continued uncertainty hanging over the economy meant activity remained subdued.
It added that there was a “real danger of slipping back into recession territory at any point”. Inflation is the biggest concern for UK companies, the BCC said.
David Bharier, its head of research, said: “The current trajectory of anaemic growth is unlikely to change unless there are significant changes to the external environment.”
Official figures published on Thursday showed that falling consumer spending helped to trigger a recession in the eurozone at the turn of the year.
The euro area’s economy unexpectedly shrank by 0.1pc in the first three months of the year, following a similar contraction in the final quarter of 2022. The European Central Bank is due to make a decision on interest rates next week.
Elsewhere, the number of Americans filing for unemployment hit its highest level in a year and a half last week, rising 233,000 to 261,000. This was 26,000 more claims than analysts had expected in yet another sign that high interest rates around the world are beginning to rein in economic activity.
The figures add to a mixed picture as rate-setters at the Federal Reserve weigh up whether to lift borrowing costs for the 11th time next week in its most aggressive round of hikes since the 1980s.
In the UK, experts said businesses should expect further pain, as interest rate rises that have already been implemented start to weigh on consumers.
Retailers in Britain are having to contend with high levels of inflation, potential further interest rate rises and “significant increases” to many mortgage repayments this year which means “things may get worse before they get better”, BDO said.
Homeware shops saw the biggest drop in demand last month, with a 9.2pc slump in sales. It suggests that families are struggling to justify expensive furniture purchases and new electronics as costs rise elsewhere.
The home goods sector has been squeezed by the inflation crisis for over a year, with retailers including Made.com and Eve Sleep filing for administration.
BDO said demand for fashion, similarly, had taken a hit last month, falling 1.5pc in what was the third consecutive month of poor results. Online fashion retailers have been at the sharp end of this downturn, amid a rise in shoppers buying and then returning items.
