Bank holidays and good weather help UK retail sales grow further in May

Retail sales were up by 0.3% in May as Britons bought summer clothes, garden equipment and sun cream in a month that included three bank holidays and the year’s first stretch of warm weather.

There were signs of customers cutting back at supermarkets, though, with food sales down 0.5% amid sky-high inflation.

But Ruth Gregory, deputy chief UK economist at Capital Economics, warned it was “too soon” to say if strong retail sales would last and keep the UK out of recession.

Neil Birrell, chief investment officer at Premier Miton Investors, said the figures “may partly justify” the Bank of England’s decision to raise rates by half a point yesterday, as the economy appears more resilient to past rate rises than expected.

ING economist James Smith said the half-point hike “won’t become a new trend, but two further [quarter-point] hikes seem like the most likely route.”

The latest rise took the cost of tracker loans up, which should rein in consumers’ spending and tame inflation.

But there was little movement in fixes this morning, with both two-year and five-year fixed rates close to flat.

The number of products on the market, though, fell by another 60, bringing the total decline in mortgages available to almost 1,000 in the past month.

After the retail numbers, sterling fell further. Fears about stubbornly high inflation in a stuttering economy – and expectations of further rate hikes – kept a cloud over the outlook for UK growth.

The pound traded at $1.2710, down 0.4 cent for the day, or 0.3%. Over the week, it has fallen by 1.2 cents, or almost 1%. It initially jumped after the BOE action, as rate rises support currencies, but wider worries on the economy soon took over as expectations of a harder slowdown set in.