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(Bloomberg) — UK retail sales last month jumped at the strongest pace since January as consumers returned to shops to buy everything from clothes to furniture after a rainy April.

The volume of goods sold in stores and online rose 2.9% in May, erasing a revised 1.8% drop during a rain-blighted April, the Office for National Statistics said Friday. Economists had expected a 1.8% gain.

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The figures come after a key survey showed consumer confidence rose to the highest level in three years, before the war in Ukraine and pandemic touched off a cost-of-living crisis. Together, they indicate that rising wages are helping households withstand sluggish economic growth and a rise in unemployment.

“Consumers are still spending, despite interest rates having remained higher for longer,” said Charlie Huggins, manager of the quality shares portfolio at Wealth Club, an investment adviser. “With rates widely expected to be cut later this summer, this could inject a further boost of optimism.”

Non-food sales rose by 3.5%, the most since April 2021. Clothing and shoe stores along with those selling furniture, sports equipment, games and toys stores all reported strong gains. That’s due to improved footfall that came with better weather and promotions.

It bodes well for overall growth in May, after wet weather put a temporary stop to Britain’s recovery from recession. Rainfall abated last month, which was also the warmest May on record. The Bank of England on Thursday upgraded its outlook for the second quarter and signaled it may be able to cut interest rates soon.

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“The retail sales data for May showed tentative signs that strengthening real income growth now inflation is back at target is feeding through to stronger spending,” said Andrew Wishart at Capital Economics. “As long as inflation continues to behave, this might not prevent a rate cut in August, although a strengthening in activity could mean the pace of rate cuts thereafter is gradual.”

It means retail sales will grow in the second quarter, and contribute to gross domestic product so long as the June figures show an increase of more than 0.2%, the ONS calculated.

However, the improvement almost certainly comes too late to boost the fortunes of Prime Minister Rishi Sunak’s Conservative Party, which polls suggest is heading for an historic defeat in the July 4 general election. The figures also showed that consumers are paying more to buy a smaller basket of goods, reflecting the lingering impact of soaring inflation.

Online retailers also saw strong growth, of 5.9% on the month, the largest increase since April 2022.

Separate figures showed the public finances on a stronger footing than previously thought. The budget deficit was £15 billion in May, up from £14.2 billion a year earlier and slightly less than the Office for Budget Responsibility’s forecast of £15.7 billion.   

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For the first two months of the financial year, borrowing undershot the OBR’s forecast by a total of £1.5 billion.

Alex Kerr, an economist at Capital Economics, said the undershoot was “welcome news” for the winner of the election on July 4 as the next government faces an urgent need to top up public spending.

However, the improvement was driven by lower investment than forecast by the OBR which more than offset slightly lower income tax receipts.

Debt costs over the two months fell, and there was no repeat of 2023’s energy-support payments. However, spending on welfare surged after a sharp uprating to benefits in April. Meanwhile, government revenue was dampened by a 2 percentage-point cut in National Insurance Contributions.

The figures provide a snapshot of the public finances before the election. Whoever wins will inherit big fiscal challenges, with debt at its highest level since the early 1960s at almost 100% of GDP and economists warning that billions of pounds of tax rises will be needed if painful cuts to public services are to be avoided.

—With assistance from Andrew Atkinson.

(Updates with comment and data on impact on GDP.)

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