13 May 2026: UK retail sales drop in April as consumer confidence continues to ebb

The cost of borrowing has risen as traders in the gilt market signal concerns about the Prime Minister’s situation. Investors increased their bets on the Bank of England raising rates in the coming months as global markets reacted to the latest escalation in tensions in the Strait of Hormuz and as Prime Minister Keir Starmer battled to stay in power.

UK rate futures on Tuesday pointed to around 68 bps of BoE policy tightening by December, approaching full pricing of three-quarter-point rate hikes, up from about 56 bps on Monday.

Sir Keir Starmer told his Cabinet yesterday that he has no intention of standing down, despite four ministers resigning and nearly 100 MPs signing a letter asking him to set a timetable for his departure. On the plus side, however, another 100 backbenchers published an open letter pledging their support.

Starmer tried to project a positive attitude yesterday, although the pressure he is facing is doubtless distracting him from doing his job effectively.

Late in the day, 10 Downing Street announced that Starmer will meet his Health Minister, Wes Streeting, this morning to discuss his plans. Streeting is one of the prime contenders to replace Starmer as Labour leader and Prime Minister. Other contenders include former Deputy Prime Minister Angela Rayner and Manchester Mayor Andy Burnham, although for him to be a contender, he will first have to win a by-election to take a seat in Parliament.

It is hard to see Starmer surviving the furore brought about by the Government’s disastrous showing in last week's local council and devolved authority elections. It used to be said that new Governments never do well in the first set of elections after they come to power and that voting patterns in such elections are rarely repeated in Parliamentary elections, but these wounds run very deep.

Yesterday’s publication of like-for-like retail sales data showed sales decreased across the board in April 2026, as rising costs stemming from the conflict in the Middle East eroded shoppers’ confidence.

Total retail sales fell 3% year-on-year in April, compared with 7% growth in April 2025, according to the latest figures published by the British Retail Consortium (BRC). This was well below the 12-month average growth of 1.8%.

Food sales declined 2.5% year-on-year in April, while non-food sales fell 3.3% year-on-year.

However, because Easter fell in the March figures this year and in April last year, this created a distortion in the year-on-year figures, and the BRC also provided a combined March and April YoY comparison.

This combined data showed retail sales increased 1.5% compared to the same two-month period in 2025.

Linda Ellett, UK head of consumer, retail and leisure at KPMG, said: "It was a disappointing April for the retail sector, even factoring in an earlier Easter, shifting some spending into March. Bar marginal growth for beauty, health and jewellery, retail sales fell across all other categories."

The pound reacted poorly to the tumult surrounding the Prime Minister yesterday. It fell to a low of 1.3500 but recovered to close at 1.3539.

One of the final steps before Kevin Warsh’s nomination as Federal Reserve Chairman went before the full Senate for ratification was completed yesterday, as he was confirmed as a Fed Governor.

Senators advanced Warsh 49-44 in the first vote of the confirmation sequence. After a stalled nomination process, the upper chamber is working to confirm Warsh as the Head of the Central Bank before Fed Chair Jerome Powell’s term expires in two days. Monday’s procedural vote required only a simple majority of senators present to move Warsh’s nomination forward.

Only two Democrats, Sens. John Fetterman of Pennsylvania and Chris Coons of Delaware, voted in favour of advancing Warsh on Monday. The Senate Banking Committee last month advanced Warsh’s nomination without a single Democratic vote, which was expected but unusual for the position.

The Senate voted yesterday to confirm Warsh as a member of the Fed board and held the first procedural vote on his confirmation as Fed Chair. The final vote to confirm Warsh as Fed Chair will occur later today.

Warsh’s nomination had been stalled in the Senate Banking Committee. Still, it moved forward after Sen. Tillis reversed his opposition following the Department of Justice’s decision to drop an investigation into whether Powell misrepresented the Fed’s headquarters renovation costs during Congressional testimony. Tillis, who is retiring after his term ends this year, held the deciding vote to advance Warsh out of the Senate Banking Committee.

Warsh was previously a Fed governor during the 2008 financial crisis. He has generally called for lowering interest rates but has not committed to doing so, saying President Donald Trump never asked him to.

Chicago Fed President Austan Goolsbee remains one of the more hawkish members of the FOMC. Yesterday, the president told reporters that “We have an inflation problem in this country, with the latest CPI data worse than expected. The worst part of current inflation is in the services sector.”

Since March 2021, US CPI inflation has remained well above the Fed’s 2% target, peaking at 9.1% before easing to a low near 2.3%. Even with inflation cooling from the extremes, the cumulative effect over that multi-year period has been significant, leaving consumers and businesses facing a much higher overall price level.

“Inflation has a way of feeding on itself over time, even as Fed officials continue to argue that longer-term inflation expectations remain anchored”.

Goolsbee said inflation readings show pervasive price pressures in the US economy and may even indicate overheating.

“If you look at the components that are not energy, like services, if that is an indication that the underlying economy is overheating, then the Fed has got to be thinking about how to break the chain of escalating inflation,”

The dollar index made moderate gains yesterday, reflecting unease over the situation in the Strait of Hormuz, which remains fragile. The index rallied to a high of 98.46 and closed at 98.29.

Chancellor Friedrich Merz says Germany must buckle down to ensure economic renewal amid geopolitical turmoil. Meanwhile, inflation is rising again, with energy prices a key driver of higher costs.

His speech to trade unionists was met with boos, whistles and jeers.

After a year in office, Merz's popularity has fallen, and his government has become embroiled in disputes over how far and how fast to reform Europe's largest economy to revive growth and tackle ballooning healthcare and pension costs.

The sceptical reception among delegates representing workers from across the industrial, public and service sectors reflects a wider battle in German politics over the pace of change, as established parties lose votes to the surging far-right Alternative for Germany (AfD).

Merz's conservatives and their junior ally, the Social Democrats, met later yesterday to thrash out differences, with Merz and his Vice Chancellor Lars Klingbeil batting away suggestions that the coalition could collapse.

After two years of recession, Germany returned to growth at the end of last year. Still, the fragile recovery risks being snuffed out by an energy shock from the war with Iran and new U.S. tariffs targeting carmakers already struggling against competition from China.

"The challenges are also so great because we have created problems for ourselves for far too long, problems that we now have to solve. We have simply failed to modernise our economy," Merz told the German Trade Union Confederation.

"Germany must therefore pull itself together. Germany must tackle the structural problems that we have been putting off for many years, problems that have consequently grown steadily larger. You know it; we all know it."

Merz said high costs and bureaucracy were hurting business, putting jobs and the prosperity of future generations at risk.

But his case for reforming health and pensions, the latter a straightforward question of "demographics and mathematics," was met with periodic heckling, whistles, and laughter. At the same time, some in the audience held up thumbs-down signs.

On a brighter note, Germany’s ZEW Indicator of Economic Sentiment rose unexpectedly in May, climbing to -10.2 from -13.0 in April. The reading surprised analysts who had forecast a further decline to -14.0, signalling a slight but notable improvement in investor confidence in the country’s economic outlook over the next six months.

The better-than-expected reading may provide some relief to the European Central Bank, which has been navigating a tightrope between curbing inflation and supporting growth. While one month’s data does not signal a trend reversal, it adds to the narrative that the German economy might be stabilising rather than falling into a deeper downturn. Investors will be watching upcoming industrial production and GDP data for confirmation.

The unexpected May rise offers a cautious glimmer of hope for the Eurozone’s largest economy. While the index remains in negative territory, the improvement suggests that financial experts see light at the end of the tunnel. The coming months will be critical in determining whether this marks the beginning of a recovery or merely a temporary pause in a broader slowdown.

Meanwhile, in France, which appears to lurch from “feast to famine and back again continuously”, companies have so far absorbed the shock of the conflict in the Middle East. Still, pervasive uncertainty and higher energy costs are beginning to strain the economy's resilience, the Central Bank said on Tuesday in its monthly business survey.

The Bank of France said there was so much uncertainty over the outlook that it could not provide its usual quarterly growth estimate. However, activity continued to expand in April, albeit more slowly, according to its survey of around 8,500 firms conducted from April 28 to May 6.

Industrial output remained a key support, buoyed by defence-linked sectors such as aeronautics, electrical equipment and electronics, even as growth eased in construction and stalled in services.

Companies reported that production held up better than expected, keeping capacity utilisation close to its long-term average.

Nonetheless, business leaders cited rising uncertainty following the outbreak of the conflict, with higher oil prices feeding through to raw material costs and transport expenses. Supply chain problems have worsened in energy-intensive industries, while services exposed to fuel prices, notably transport and logistics, are seeing margins squeezed.

The euro lost ground yesterday as market concerns over the ongoing conflict in Iran weighed heavily across the region. The single currency fell to a low of 1.1721 and closed at 1.1738.

Have a great day!