UK retail sales fell at the fastest pace this year, as consumers delayed spending due to rainy weather, underlying the hurdles facing the Conservative government’s bid for re-election.

The volume of goods sold in stores and online plunged 2.3% in April, after a downwardly revised 0.2% decline the month before, the Office for National Statistics (ONS) said on Friday. That was much sharper than the 0.5% drop economists had expected. It was also the worst reading since December, when the UK economy had dipped into a recession. 

UK Prime Minister Rishi Sunak’s government is betting an improving economy will help close a 20-point gap with the Labour opposition in the general election set for July 4. Official data from retailers underscored a continuing cost-of-living squeeze, with shoppers paying more to buy a smaller basket of goods after the worst inflation in four decades.

The pound fell to a one-week low at US$1.2676 after the data. The currency is still the best performer in the Group of 10, except for the dollar this year, and has been boosted in the past days by expectations the Bank of England will take longer to start cutting interest rates. There was little change in rate bets after the report, with traders pricing out the possibility of a move in June.

Clothing, sports equipment, games and furniture sales did poorly, as poor weather reduced footfall in stores, the ONS said. Car fuel sales volumes fell the most since October 2021. Total retail sales fell 2.7% from a year ago in April, worse than the 0.4% gain the month before.

“Gloomy, wet weather combined with the cost of living squeeze dampened spending,” said Kris Hamer, the director of insight at the British Retail Consortium. She added that consumers were more reluctant to spend on big-ticket items, while poor weather hurt clothing and footwear sales.

It’s the latest batch of economic data to be hit by unusually rainy weather, which also contributed to a drop in gross domestic product that pushed the UK into a recession last year. February’s construction output was also hit by rain.

Retail sales for March and April combined fell by 1.1% compared with those two months a year ago. The ONS said it’s confident in the seasonal adjustment it made to reflect the early timing of the Easter holiday this year at the end of March.

“Some retailers have been able to weather the storm better than others,” Jacqui Baker, the head of retail at RSM UK. “Marks & Spencer for example, showed strong growth in food, clothing and home sales in its latest results. Its success story shows it’s possible to turn things around.”

The British Retail Consortium earlier this month warned that April was a bleak month, after gloomy weather dissuaded consumers from buying summer clothing or garden furniture. 

The Met Office said the month continued “unsettled, wet and dull” weather, and brought heavy rain to Scotland, Wales and parts of western England. Heavy gales accompanied Storm Kathleen at the start of the month.

“As rainfall returns to more seasonal norms, the high street should see less disruption,” said Rob Wood, the chief UK economist of Pantheon Macroeconomics Ltd. “Real income growth continues improving as inflation falls.”

Consumer confidence improved for a second consecutive month, thanks to a drop in inflation that’s loosening pressure on household budgets.

Market research firm GfK Ltd said its sentiment tracker climbed two percentage points to minus 17 in May. That’s stronger than the minus 18 expected by economists surveyed by Bloomberg, and well above levels a year earlier when the cost of living crisis was still biting hard.

“With the latest drop in headline inflation and the prospect of interest-rate cuts, the trend is certainly positive after a long period of stasis,” said Joe Staton, the client strategy director of GfK. “Consumers are clearly sensing that conditions are improving. This good result anticipates further growth in confidence in the months to come.”

GfK’s measures of personal financial prospects, savings and the general economic outlook all posted gains. However, an index tracking the willingness of households to splash out on big-ticket items declined one point to minus 26, “reinforcing the fact that the cost-of-living crisis is still a day-to-day reality for all of us”, Staton said.

“The prospect of interest rates starting to be cut this summer and the boost to real household disposable income from falling inflation imply confidence will climb further, and the recovery in consumer spending will continue throughout this year,” said Ashley Webb at Capital Economics.

  - Bloomberg