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Sales growth slips back

20poundnotesRetail sales growth slipped back sharply in May, although furniture and flooring sales were described as 'encouraging'.

UK retail sales rose by 0.5% on a like for like basis in May compared with May 2013, when they had increased 1.8% on the preceding year, according to the British Retail Consortium-KPMG Retail Sales Monitor. On a total basis, sales were up 2.0%, against a 3.4% rise in May 2013. The slowdown was blamed on the supermarkets' price battles.

'The recovery is gaining pace in the retail sector, but the latest figures reveal the scale of the paradox that has emerged. While non-food retailers are seeing steady sales growth, the grocers appear locked in a race to the bottom, imposing price cut after price cut to maintain their sales volumes. This price war is hindering the retail sector's overall recovery, which without the effects of these cuts would have seen like for like sales growth outpace inflation over the last quarter,' says David McCorquodale, KPMG head of retail.

'With Easter distortions now behind us, the non-food sector is showing encouraging signs of growth with total sales growing by more than 4% over the last quarter. Clothing and footwear led the charge, although furniture and flooring sales are also encouragingly higher than inflation for the quarter. Consumer confidence can still be fickle, but the response to targeted campaigns has been positive. Retailers are investing in their businesses and planning for further growth at home and abroad.

'The main barrier to recovery is now the grocers' battle over price. The deflationary effect of these prolonged discounting campaigns, whilst good for consumers, is feeding through to the grocers' margins and share values. The constant price matching brings into question the long term value of the grocers' brands and positioning, but in the short term is providing the UK consumer with plenty of options.'