UK retail sales slump in May

UK shoppers curtailed their spending in May as sales fell more than expected

LONDON, England -- Retail sales in the UK slumped to their lowest level in more than two years in May as consumer spending fell unexpectedly.

Sales volumes fell a seasonally adjusted 0.6 percent last month, compared to a 1.8 percent rise in April, the Office for National Statistics said on Thursday. The May figure was the weakest since February 2000 when sales fell 1.7 percent.

The ONS said year-on-year sales rose 5.4 percent in May, down from an annual figure of 7 percent in the previous month. Last month's performance was the poorest since a 4.7 percent increase in January this year.

Many analysts had expected a decline of 0.3 percent for the month and an increase of 5.5 percent year-on-year.

However, some believe it is too soon to interpret the May numbers as a weakening trend.

"These figures have been so erratic recently. It does represent a slowdown in consumption but it was always going to fall this month because of the seasonal factors and the annual rate, at 5.4 percent, remains pretty strong," George Buckley, an analyst at Deutsche Bank, told Reuters.

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But the May sales figures may be weak enough to convince the Bank of England to hold off raising interest rates next month.

The BoE's Monetary Policy Committee meets July 3-4 to decided on the direction of rates. Its key lending level has been at 4 percent since November, after the rate was cut seven time in 2001 in an effort to prop up the sluggish economy.

The central bank had been expected to begin raising its key rate as the economy started to show signs of recovery.

So far, however, economic data has pointed to a weaker than expected rebound. Recent weak inflation numbers and stock market turbulence have also prompted many to believe the BoE will keep rates on hold for the time being.

"I don't think really it [the retail sales volume] is going to have much impact on the policy either way because the Bank of England knows these figures are so volatile and they'll want to wait until the Easter period is well behind before they can see what the real pattern is," said Deutsche Bank's Buckley.

The ONS said the May decline in sales was due mostly to a 5.2 percent drop in clothing and footwear purchases -- compared to a 8.7 percent increase a year earlier -- with bad weather prompting consumers to hold off buying summer clothing.

Household goods rose 2.2 percent last month -- down from a 7.9 percent rise in May 2001 -- with a slight boost coming from television sales ahead of the World Cup.

The ONS cautioned the shift of the May bank holiday into June for Queen's Elizabeth II's Golden Jubilee celebrations could affect the seasonally adjusted sales figures for those two months.

"Possibly, we will see a correction in June, though with the World Cup and Jubilee that's also likely to distort data," Glenn Davies, an analyst at Credit Lyonnais, told Reuters.

"We'll really have to wait until July or August to work out what the thread is."