Shoppers defy credit crunch in spending spree

A BIG leap in sales brought a ray of sunshine to Britain's gloomy high streets yesterday, as shoppers indulged in retail therapy to lift their spirits amid talk of the recession.

Last month saw the biggest rise in sales for more than 20 years, according to figures from the Office for National Statistics, leaping 3.5 per cent compared to April.

Barbecues, salads, summer clothes and shoes were among the biggest sellers, as consumers sought to dim memories of the global credit crunch.

"Last year's summer was such a wash-out that it feels as if I'm making up for last year," said Mark Smith, from Burntisland, Fife, who was among the shoppers on Princes Street in Edinburgh yesterday.

Lesley Kennedy, of Edinburgh, added: "I think people do go out into the high street, and even if they don't feel like spending, there are so many bargains out there that a little treat will make you feel better if things are a bit tight."

Such is the extent of the rise in sales that there is talk of an increase in interest rates to combat growing inflation.

Howard Archer, the UK economist at Global Insight, described the figures as "astounding", even if the weather was taken into account.

"The data seems totally at odds with the survey evidence and with consumer confidence standing at an 18-year low," he said.

"Although surveys had indicated there had been some pick-up in retail sales in May after muted performances in April and March, they did not suggest that growth was anything like this."

He added: "The Bank of England is likely to treat the retail sales data with a great deal of caution; it recently expressed doubts as to its reliability. Nevertheless, the sheer strength of the rise in retail sales in May clearly shortens the odds of an interest-rate hike before long."

Ben May, from Capital Economics, said that the figures "defied gravity".

He added: "May's whopping rise in UK retail sales will certainly keep talk of possible interest-rate hikes alive."

The director-general of the British Retail Consortium, Stephen Robertson counselled caution over the figures, which he ascribed to May's unseasonably warm weather.

"As the sun came out, so did shoppers, boosting sales of summer food and drink and particularly clothing; which had been struggling," he said.

"However, the economic fundamentals remain weak. Much of this sales growth is the result of discounts and promotions, and people are still reluctant to buy more expensive items.

Personal finances are under severe and mounting pressure. Customers are concerned about jobs and the housing market."

While good weather is helping loosen the purse-strings at home, three out of five households also admit throwing caution to wind when they head overseas. As a result, nearly one in ten British holidaymakers will spend more than £2,500 on their holidays despite plans to cut back this year.

BACKGROUND

TO APPRECIATE fully the scale of last month's jump in sales, it must be remembered that Britain's biggest shops began the year by predicting 2008 would be among the most difficult in memory.

Last month, the department store chain John Lewis, regarded as a bellwether for the retail sector, reported that its sales had fallen for the fourth consecutive week.

Prior to May, the last British Retail Consortium sales figures showed year-on-year total retail sales growth slowing to one per cent in April – the weakest performance for three years.

And although government figures show that the economy grew by 0.4 per cent in the first three months of 2008, in May consumer confidence slumped to its lowest point since the onset of the last UK recession in 1990. It came on the back of news that house prices south of the border had dropped by 2.5 per cent in April and that in the six months up to the end of May, house prices fell at an equivalent annual rate of 11.4 per cent, accelerating to an average of 16.1 per cent in the most recent three months.

Earlier this month, the Organisation for Economic Co-operation and Development's latest report on the world economy painted its gloomiest picture of Britain's prospects.

It said that Britain was highly vulnerable to the credit crisis.