UK retail sales increased in May, though the trio of bank holidays failed to boost figures as much as expected, according to new data / Image: FTSE 100 stock market index chart; Credit: Immersion Imagery via Shutterstock.

While the FTSE 100 rebounded with a 0.4% gain, the retail sector faces challenges amid disappointing economic data and concerns about a recession.

The retail industry experienced slower growth in May than expected, despite the boost from multiple bank holidays. This article examines the impact of these developments on the retail sector and highlights key updates from major companies.

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Slow growth in retail sales

Retail sales in the UK grew by 3.9% in May, according to the British Retail Consortium KPMG retail sales monitor. While this indicates an improvement compared to the 1.1% decline in the same period last year, it fell short of the expected growth rate of 5.2%. Like-for-like sales also showed a slowdown, increasing by 3.7%, below the 5.2% consensus estimate.

The underperformance can be attributed to factors such as consumer confidence still recovering from previous lows and tightening household incomes.

The grocery sector was the best-performing category, with a 9.6% increase in sales compared to the previous year. However, sustained growth throughout the month was not achieved. Rising food prices, which hit a 45-year high in March, continue to put pressure on consumers’ wallets.

Overall, the figures suggest that substantial sales growth may not be realised in the coming months due to these challenging factors.

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BAT’s commitment to strategy

British American Tobacco (BAT) has reaffirmed its commitment to its existing “A Better Tomorrow” strategy, which aims to provide smokers with better choices through a reduced-risk product portfolio.

BAT’s new CEO, Tadeu Marroco, stated that smokers should have access to alternatives to traditional cigarettes. The company’s strategy focuses on transforming its portfolio by encouraging adult smokers to switch to less risky products.

BAT’s first-quarter results showed positive growth in the number of consumers using non-combustible products, putting the company on track to achieve its £5bn revenue target by 2025.

However, challenges persist in the US combustibles market, which is critical to BAT’s overall strategy in the country.

Outlook for the retail sector

The retail sector faces headwinds such as rising inflation and tightening household incomes. The recent slowdown in growth, despite multiple bank holidays, underscores the challenges retailers are facing.

While food sales have remained strong, other segments, such as house building, have experienced significant declines. Concerns about a potential recession and the impact of inflation on consumer spending contribute to a less favourable outlook for the industry.