Food prices squeeze consumers in June, hot weather boosts summer spending: BRC

People walk on Oxford Street in London

By Suban Abdulla

LONDON (Reuters) - Unusually hot weather boosted sales of sun screen and barbecue food in Britain last month, a British Retail Consortium survey showed on Tuesday, but consumers spent less on big-ticket items as high food prices continued to squeeze their budgets.

The BRC said retail spending increased by 4.9% in annual terms in June - roughly in line with its average this year, though stronger than May's 3.9% and a 1.0% drop a year earlier.

Last month was Britain's hottest June since modern records began, and the BRC said this drove sales of swimwear, beach towels and outdoor games as well as garden furniture.

However, the BRC data is not adjusted for inflation, so last month's increase in spending still reflects a fall in the volume of goods purchased.

Previous BRC data showed prices among its members were up by an annual 8.4% on average in June, rising to 14.6% for food, despite a drop in the cost of some food products.

Over the second quarter as a whole, food spending was up 9.8% while non-food spending grew just 0.3%.

Paul Martin, UK head of retail at accountants KPMG, who sponsor the data, said stubborn food inflation was reducing shoppers' ability to spend on non-essential items.

"Consumers have so far remained resilient, but the triple threats of further interest rate hikes, resolute double digit food inflation and an economy recovering at slower rate than predicted, could hamper a return to much needed profitable growth across the retail sector," Martin said.

Official figures showed consumer price inflation held at 8.7% in May, and financial markets are betting the Bank of England will raise rates as high at 6.5% early next year, up from 5% now.

The BRC said like-for-like retail sales - a measure favoured by equity analysts which adjusts for changes in retail space - were 4.2% higher on the year in June, up from 3.7% in May.

Separate figures from Barclays on Tuesday showed consumer spending on debit and credit cards rose 5.4% year-on-year in June, with spending on groceries up 9.5%, the most since February 2021.

However, Will Hobbs, chief investment officer at Barclays' UK wealth management division, said Britain's economy remained in a precarious spot.

"Inflation contagion is perhaps furthest advanced here," Hobbs said. "There is more work for central bankers yet, even as the creaks and strains on the mortgage and other borrowings become increasingly audible."

(Reporting by Suban Abdulla; editing by David Milliken)