U.K. retail sales jumped more than expected in May on the back of good weather and royal wedding festivities, underpinning the chances of a Bank of England rate hike later in the year.
Sales volume rose 1.3% month over month in May, data from the Office for National Statistics, or ONS, showed, compared with an Econoday consensus estimate of a 0.3% rise.
Year over year, sales volume climbed 3.9% in May, compared with a 1.4% rise in April and higher than the Econoday consensus estimate of 2.2%.
The pound was up 0.45% against the dollar as of 5:43 a.m. ET.
The strong annual increase in May could be attributed to a combination of warm weather and slower annual growth in the year-ago period. "Feedback from retailers suggests that a change to sustained warm weather following the adverse weather seen earlier in the year has seen increases in consumer spending in the current month," the ONS said.
Online spending was also on the rise year over year, particularly for food, department stores, and clothing and footwear stores.
The monthly acceleration was supported by expansion in non-store retailing, which contributed most to the growth in the quantity bought. Food stores also provided a positive contribution to growth with supermarkets commenting on good sales in celebration of the royal wedding during good weather.
While the latest retail numbers seem impressive at face value, "we don't think retailers are out of the woods just yet," according to ING. Minus the effects of warm weather in May and the royal wedding, "the environment still looks challenging," ING said. "So while our base case is for the Bank of England to hike rates in August, the challenges facing the retail sector are probably the biggest risk to this view."
Annual U.K. inflation came in lower than expected in May despite a spike in fuel prices, while the country's manufacturing output in April recorded its largest decline in more than five years.