Retail Sales Plunge Unexpectedly — UK Economy Off to a Weak Start in Q2

TradingKey – Data released by the UK Office for National Statistics on Friday showed a sharp decline in retail sales. UK retail sales fell 2.7% month-on-month in May , far exceeding the market expectation of a modest -0.5% drop , and marking the biggest decline since December 2023.

[UK Retail Sales MoM, Source: Investing.com]

This sudden drop marks the first monthly decline this year and breaks a streak of four consecutive months of growth — signaling a concerning start to the second quarter and a broader weakening in consumer spending.

The main driver behind the downturn was a 5% drop in food sales , with household goods and clothing also falling by 2.5% and 1.8% , respectively. These figures reflect growing caution among British households as inflation continues to weigh on disposable income.

The steep decline in retail sales adds pressure on overall economic growth. While the UK economy expanded by 0.7% year-on-year in Q1 , activity contracted in April, and now weak data from May suggests that Q2 growth will be significantly slower than expected.

Following the release, the British pound weakened to around 1.3470 against the U.S. dollar . Financial markets are increasingly betting on an earlier-than-expected interest rate cut by the Bank of England, with traders pricing in nearly 48 basis points of rate cuts by the end of the year , reflecting rising concerns about the economic outlook.

[GBP/USD Chart, Source: Investing.com]

In a separate survey by the British Retail Consortium , consumer confidence rose to its highest level since December in June, but still remains deeply negative — indicating that while sentiment may have stabilized slightly, underlying demand remains weak.

With both inflation trends and monetary policy decisions now under close watch, the poor retail performance could influence how the Bank of England assesses the health of the economy in the coming months. The broad slowdown in consumer spending is likely to weigh heavily on the UK’s GDP performance in Q2.