UK shoppers slow spending after April bounce, surveys show

British consumer spending growth decelerated in May, with the BRC reporting a 1% rise in retail sales, down from April's 7% increase, and Barclays noting a slowdown in overall consumer spending growth to 1.0% from 4.5% the previous month. The slowdown reflects weakening consumer confidence, driven by rising household bills and concerns about interest rates, leading nearly half of consumers to plan discretionary spending cuts as the Bank of England is expected to maintain interest rates at 4.25% amid persistent inflation.

Analysis

British consumer spending significantly decelerated in May, reversing a strong performance in April. The British Retail Consortium (BRC) reported that spending in shops increased by a mere 1% year-on-year, the smallest rise in six months and a sharp decline from April's 7% jump, which had been the highest since the COVID-19 pandemic. This slowdown is attributed to the pulling forward of seasonal purchases into April and a dampening of spending appetite as households contended with recent increases in essential bills, including a 6% rise in the regulated energy price cap. Corroborating this trend, Barclays data, which covers a broader range of goods and services, showed consumer spending growth slowed to 1.0% in May from 4.5% in April. Furthermore, Barclays' measure of household confidence fell by three percentage points to 67%, with nearly half of consumers surveyed indicating plans to reduce discretionary spending. These developments occur amidst heightened concerns about interest rates, as the Bank of England is widely expected to maintain its rate at 4.25% due to persistent inflation pressures, further weighing on consumer sentiment and their capacity to spend.

Key Decisions for Investors

• Investors should adopt a cautious stance towards UK consumer discretionary sectors, given the clear deceleration in spending and weakening consumer confidence reported for May.
• Closely monitor upcoming UK inflation figures and Bank of England monetary policy decisions, as these will be critical drivers for consumer spending and sentiment in the near term.
• Consider reviewing exposure to retail and leisure companies, particularly those heavily reliant on non-essential spending, as nearly half of consumers are planning cutbacks.
• The combination of rising essential bills, anticipated sustained high interest rates, and declining household confidence suggests that a defensive portfolio allocation may be prudent for UK-focused investments.