UK retail sales rise by 0.9% in June, ONS says

UK retail sales volumes rose 0.9% month-on-month in June, partially recovering from May's sharp decline, primarily driven by warm weather boosting drinks, clothing, and fuel sales. However, this increase fell short of the 1.2% median forecast, highlighting persistent consumer weakness amid 3.6% inflation and a broader economic slowdown, with sales up only 0.2% in the three months to June. This mixed data provides a nuanced signal for the Bank of England, which is expected to cut rates despite ongoing inflation pressures.

Analysis

UK retail sales volumes posted a modest 0.9% month-on-month rebound in June, a figure that only partially recovers the sharp 2.8% decline from May and notably missed the consensus forecast of a 1.2% increase. This underperformance signals persistent consumer fragility despite a temporary boost from warm weather, which drove sales in specific categories like drinks and clothing. The divergence within the sector is stark, with supermarket Sainsbury's (SBRY.L) reporting better-than-expected trading while fast-food retailer Greggs (GRG.L) warned on profits due to reduced footfall from the heat. On a broader basis, the trend remains weak; sales volumes grew just 0.2% in the three months to June, the slowest quarterly rate since February, and are still below pre-pandemic levels. This weakness is contextualized by an environment of 3.6% inflation, rising food prices, and declining consumer confidence, which is prompting households to increase savings. For the Bank of England, this data supports the case for a quarter-point rate cut in August to address economic contraction, but persistent inflation may limit the scope for more aggressive easing.

Key Decisions for Investors

• Investors should remain cautious on broad UK consumer discretionary exposure, as the sales data miss and weak quarterly growth highlight underlying consumer stress despite the weather-driven monthly uptick.
• The contrasting results from Sainsbury's and Greggs underscore the need for careful stock selection, favoring retailers with business models resilient to external factors like weather over those susceptible to volatile footfall.
• While the data reinforces expectations for a near-term Bank of England rate cut, persistent inflation may create a floor for borrowing costs, suggesting a potentially range-bound outlook for Sterling and UK government bonds.