UK retail sales increased 1.0% month-on-month in June 2024, according to data released Friday by the Office for National Statistics (ONS), exceeding economists' expectations for a 0.3% decline. The reading marked a rebound in consumer spending after a fall in May, with warmer weather and early summer discounts cited as factors behind the stronger performance.

Retail sales rebound after May decline

The 1.0% rise in retail sales volumes represented a clear turnaround from the 0.3% decline recorded in May 2024. The ONS said sales volumes rose across all retail sectors, with the strongest gains reported by non-food stores and department stores.

On an annual basis, retail sales were up 0.2% compared with the same month a year earlier. That also surpassed the consensus forecast, which had called for a 0.5% year-on-year decline.

The figures indicate that British consumers continued to spend despite ongoing pressure from elevated interest rates and a higher cost of living. Analysts noted that June's improvement was partly supported by promotional events and warmer weather, which encouraged increased footfall on high streets. The data arrived days after the UK general election on July 4, which brought a new Labour government under Prime Minister Keir Starmer to power, adding to the sense of a potential turning point for the economic outlook.

Economic and market implications

The stronger retail sales report offered a positive data point for the UK economy, which has been dealing with sluggish growth and persistent inflation. Consumer spending accounts for around 60% of UK gross domestic product, making retail data an important measure of broader economic conditions. Headline CPI inflation had returned to the Bank of England's 2% target in May 2024, though services inflation remained elevated, leaving policymakers to weigh the durability of disinflation against signs of resilient demand.

With the Bank Rate held at a 16-year high of 5.25%, the better-than-expected result may reduce the likelihood of an immediate interest rate cut when the Monetary Policy Committee next meets on August 1, as policymakers assess resilient consumer demand alongside still-elevated price pressures in parts of the economy.

Following the release, sterling strengthened modestly against both the US dollar and the euro as traders adjusted expectations for the monetary policy outlook. UK gilt yields also edged higher, reflecting a lower perceived probability of a near-term rate reduction.

Impact on retailers and consumers

For retailers, the June rebound provided some relief after a difficult spring. However, industry bodies cautioned that the outlook remains uncertain, with household budgets still under strain from higher mortgage costs and energy bills.

The ONS noted that although sales volumes improved in June, they remained below pre-pandemic levels when adjusted for inflation. Continued discounting may benefit consumers as retailers compete for discretionary spending, but the wider economic backdrop suggests that any recovery in the retail sector is likely to be gradual and uneven across categories.

Outlook

The June retail sales data showed stronger UK consumer resilience than many economists had expected. While the 1.0% monthly gain was a notable improvement, it did not by itself indicate a full recovery for the sector.

Policymakers and market participants are expected to monitor upcoming data releases — including the next inflation and labour market reports — to assess whether the momentum seen in June can continue through the second half of 2024.

Key details from the report

The June rise was primarily attributed to warmer weather and promotional discounts, particularly across non-food stores and department stores, which helped support higher consumer spending.

Retail sales rose 1.0% month-on-month, compared with expectations for a 0.3% decline. Annual sales increased 0.2%, versus forecasts for a 0.5% decline.

The stronger-than-expected data may reduce the immediate likelihood of a Bank of England rate cut, as officials may view consumer demand as sufficiently resilient while inflation remains above target.