Inflation woes hit high street

RETAILERS’ shares fell sharply yesterday as shoppers felt the heat from rising inflation.

Official figures showed a bigger than expected 1.2 per cent drop in sales volumes in May compared with the previous month, while the annual 0.9 per cent yearly rise in the amount of goods bought was the lowest since April 2013.

Spending on big ticket items such as furniture and electrical appliances took a hit, with shares in furniture retailer DFS plunging by 52p to 200p as it sounded a profit warning after “significant declines” in store visit numbers.

Fashion retailers Next and Marks & Spencer lost over 6 per cent and 4 per cent of their market value respectively, while shares in homewares retailer Dunelm were down 6 per cent.

Sales had surged to an eight-month high in April due to the timing of Easter, but economists warned the outlook for the high street was becoming more uncertain as price hikes outpace wage increases. Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Sentiment towards UK retailers is remarkably fragile. They are undoubtedly facing tough times as inflation looks set to hit household budgets.”

Chris Williamson, chief business economist at IHS Markit, said: “When prices rise faster than wages, it should be no surprise to see household spending come under pressure, and that’s what the UK is seeing right now.

“Sales have now fallen in five of the past seven months, which is a clear warning sign that households are feeling the pinch.

“The squeeze on household budgets is likely to get worse before it gets better. Inflation could well breach 3 per cent in coming months, but there’s little prospect of pay growth picking up.”