How resilient is the UK consumer amidst a difficult backdrop?

The splurge of UK economic data released this week has sent mixed signals as to how the economy is faring in the face of challenging international and domestic conditions. Some data have suggested that cracks in the economy are forming (such as the labour market data and yesterday’s PMIs), while other releases have been more resilient. Adding to the picture this morning was GfK consumer confidence, retail sales and public finance data. We will take each release in turn.

Starting with retail sales, on the face of it, the headline figure for April looked soft. Indeed, sales volumes dropped by 1.3% on the month, a larger fall than consensus estimates which looked for a 0.6% decline (Investec: -1.2%). But the majority of the weakness in the headline figure was due to a 10.2% plunge in fuel sales (on the volume measure, so not accounting for price changes).

This should however be viewed in the context of a 6.7% increase last month, as fears of shortages drove extra activity at the forecourts. This can explain part of the subsequent weakness in April, but the report did also note that there has also been a behavioural change with motorists having made fewer journeys due to the high price of fuel.

When we exclude fuel sales though the picture looks much more encouraging for retailers. Although sales volumes were still down 0.4%, considering the backdrop retailers were likely braced for far worse. A big contributor to the fall in non-fuel sales was clothing stores, which saw sales volumes decline by 2.4% in April, with retailers attributing the weakness to variable weather conditions, as well as increased consumer price sensitivity.

Looking ahead to May retailers might be comforted by an improvement in consumer sentiment as per the GfK consumer confidence measure – although we would note the readthrough from sentiment indicators to activity can often be shaky. Nevertheless, consumer confidence actually rose in May, defying consensus and our own expectation for a further deterioration.

Indeed, the headline measure picked up two points to -23 (consensus: -28, Investec -30), with four out of the five sub measures rising. Furthermore, the savings index, which does not feed into the overall index but is an indication as to how nervous consumers are fell by a whopping ten points to +22, reaching similar levels as was recorded before the conflict in Iran.

This overall improvement in sentiment comes despite the warnings over supply shortages due to the ongoing closure of the Strait of Hormuz, and political instability at home.

Lastly, to finish off the flurry of UK data releases this morning, we also had public sector net borrowing figures for April. These showed net borrowing of £24.3bn on the PSNBx measure, greater than consensus estimates of £20.9bn (Investec: £21.1bn), and the OBR's forecast of £20.9bn. This was £4.9bn more than in April of last year, with inflation once again a culprit behind the larger government spend (central government expenditure was £6.2bn higher on the year).

The fact that in the first month of the new fiscal year the borrowing figures are already overshooting the OBR’s forecast does not bode well for the Chancellor, particularly as she has just announced a new support package which scraps the planned 5p fuel duty rise, at an estimated cost of £2.4bn a year. However the PSNBx figures can be prone to heavy revisions – indeed, in this release the estimate of borrowing over the 2025/26 FY was revised down by £3.0bn – so we will reserve judgement on the health of the public finances this fiscal year for now.