UK retail sales bounce 1.2% in May, trend still flat

Retail sales volumes rose 1.2% in May, the Office for National Statistics said Friday, recovering some of the 1.3% drop recorded in April. The monthly swing leaves the three-month average pointing to stagnation rather than a durable recovery.

Consumer spending remains under pressure from inflation that has been slow to ease back toward the Bank of England's 2% target, economists said. Real incomes are still being squeezed. The central bank has held its key rate at 4.75% since March, a level that continues to weigh on mortgage holders and credit demand.

The fragility shows up in other data. Consumer confidence surveys have stayed in negative territory for months. The savings rate has risen as households brace for a prolonged stretch of high rates. The BOE's own agents report that households are trading down to cheaper brands and delaying big-ticket purchases.

For the BOE, this week's numbers offer little reason to adjust policy. The economy is not falling off a cliff. It is also not building momentum. Governor Andrew Bailey has emphasised that the committee needs evidence of a durable slowdown in services inflation and wage growth before easing. The retail print, taken on its own, does not tip that balance.

The next decision point is the BOE's June 19 rate meeting. Markets are pricing roughly a one-in-three chance of a cut, a bet that has barely shifted after the release. Sterling held near $1.32 against the dollar. The real test comes with the May inflation report, due on June 14, and the average weekly earnings data that follows.