Warm weather and the timing of Islamic Eid celebrations boosted retail sales in the U.K. in June, but rising inflation and pressure on income are still causing pause for concern for British retailers.
UK retail sales increased by 1.2% on a like-for-like basis from the same period last year, according to data released Tuesday, July 11, by the British Retail Consortium. On a total basis, sales rose 2%, the BRC said, adding that June's growth life-for-like growth, which measures gains in stores open for a least a year, is below the 6-month and 12-month average of 1.4%.
To be sure, the weather in the U.K. has been better than normal driving consumers to spending on leisure activities, summer clothing, beauty products and outdoor toys, BRC CEO Helen Dickinson said in a statement. Retail sales were also boosted by gift purchases over Eid.
"On closer inspection the year on year numbers belie the fact that rising food prices are responsible for the main component of growth and have prompted more cautious spending towards discretionary non-food items," Dickinson said.
Over the three months to June, food sales increased 3.6% on a like-for-like basis and 4.7% on a total basis. This is the strongest 3-month average since February 2012. However, non-food sales show another picture, increasing just 0.9% on a like-for-like basis in the three months to June and 1.2% on a total basis.
"Looking ahead, there's a question mark over whether this spending momentum will last, as household expenditure is increasingly squeezed from rising inflation and slowing wage growth. The reality is that retailers' efforts in absorbing mounting cost pressures into their margins are already being tested," Dickinson said.
The trend of consumers putting off big purchases was borne out in Marks and Spencer plc (MAKSY) first-quarter earnings released Tuesday.
M&S said like-for-like sales for the three months ending on July 1 rose 2.7% to £2.531 billion ($3.26 billion) while U.K. sales, which comprise more than 90% of the group's revenue, fell 0.5% to £2.259 billion. Food sales in Britain, a traditional outperformer when inflation rises, fell 0.1% from the same period last year, the company said, while sales in the group's Clothing & Home division slumped 1.2% to £852 million.
M&S shares were down 1.24% at 8:33BST, changing hands at 334.8 pence, shares have lost 3.1% over the past three months, compared with a 4.23% fall in the FTSE 350 General Retailers Index.
However, the boost in sales from the BRC is at odds with data from Visa released yesterday that saw consumer spending has fallen to its lowest levels in nearly four years.
Visa's Consumer Spending Index saw June round off the worst quarter for spending since 2013. Household expenditure was down on the previous year for the second month running at minus 0.3 per cent, a slight improvement on the 0.9 per cent decline seen in May.