UK retail sales record biggest monthly drop since 2023

By David Milliken

LONDON (Reuters) -British retail sales volumes recorded their sharpest drop since December 2023 last month, as demand fell after shoppers splurged on food, summer clothes and home improvements the month before, official figures showed on Friday.

Retail sales volumes dropped by 2.7% in May, the Office for National Statistics said, a much sharper decline than the median forecast of 0.5% in a Reuters poll.

Sales volumes were also 1.3% lower than a year earlier, the biggest annual drop since April 2024 and well below a Reuters poll forecast for 1.7% annual sales growth.

The monthly decline was mainly due to what ONS statistician Hannah Finselbach described as a "dismal month for food retailers" with lower spending on alcohol and tobacco, as well as reduced footfall at clothing stores and less demand for DIY items as dry weather had allowed work to be done earlier.

"The sharp 2.7% m/m drop back in retail sales volumes in May adds to other evidence that the burst of economic growth in Q1 is over. That said, consumer spending may still outperform other areas of the economy this year," Capital Economics' Chief UK Economist Paul Dales said.

Sterling dropped by about a quarter of a cent against the U.S. dollar after the data, which came alongside government borrowing figures which showed a slightly larger than expected budget deficit of 17.7 billion pounds ($23.85 billion) for May.

Britain's economy grew a faster-than-expected 0.7% in the first quarter of 2025 but shrank in April - due to the end of a property tax break and an initial hit from U.S. tariffs - and the Bank of England forecasts overall growth of 1% for 2025.

April's retail data had shown robust 1.3% sales growth after demand was boosted by unusually sunny weather for the time of year and GfK consumer sentiment data for June, released earlier on Friday, showed the highest sentiment so far this year.

However, reports from retailers have been more mixed. The British Retail Consortium said earlier this month that sales growth slowed sharply in May as shoppers had done much of their summer purchases a month earlier.

Updates this month from major British retailers have been mixed. Tesco, the country's biggest food retailer, beat expectations for first quarter sales, despite what it called an "intensely competitive" market. However, struggling discounter Poundland said it plans to close 68 stores.

($1 = 0.7422 pounds)

(Reporting by David Milliken; Editing by Sarah Young and Kim Coghill)