High street growth starts to slow, reports CBI

Sales volumes on the high street rose in January compared to a year ago but the pace of growth is starting to slow, according to the CBI.

Its latest Distributive Trades Survey, which covers the two week period from 4 January, found 61% of retailing respondents saw the volume of sales rise, compared with 24% that reported a fall. That gives a resulting balance of +37%, compared with +56% in December. The balance for the three-month moving average was +45%, unchanged from the previous month.

In February, retailers expect sales growth to ease further. A balance of +25% of retailers expect the volume of sales to rise on a year ago, and they are predicted to be in line with the average for the time of year (a balance of +2%).

Sales were still above seasonal norms in January, but to a lesser extent than in December, with 37% of retailers saying they were above average for the time of year, and 29% saying they were below. That gives a balance of +8%, compared with +18% in December.

After six months of solid growth, the volume of orders placed upon suppliers was broadly unchanged (+3%), and is expected to remain flat in February.

Ian McCafferty, CBI chief economic adviser, said: “This survey captures an interesting period for retailers, spanning the introduction of the VAT rise and price reductions during the post-Christmas sales.

“The lure of seasonal sales and price discounting may have helped mitigate some of the impact of the VAT increase on volumes. However, retailers expect the pace of sales growth to slow further next month, and orders placed with suppliers have flattened out.

“Consumer demand is expected to be weak in the coming months, as the spending power of households is hit by a combination of sharply rising prices and weak wage growth. Retailers can expect a challenging period ahead.”

The sub-sectors with the strongest sales growth were grocers, footwear and leather and clothing, while sales of durable household goods fell particularly sharply.

Among wholesalers, 52% said the volume of sales rose, while 3% said they fell. The resulting balance of +49% is the fastest rate of growth since May 2008 (a balance of +50%) and the balance for the three-month moving average was +19%, the highest since June 2010. Next month, a balance of +30% of wholesalers expect sales to be higher than a year ago.

In motor trades, the volume of sales fell on a year ago. Of the respondents, 2% said volumes rose, while 60% said they fell, giving a rounded balance of -59%, the weakest figure since July 2009 (-76%). Sales are expected to fall again next month (a balance of -27%).

Richard Lowe, head of retail and wholesale at Barclays Corporate, which provides banking services to businesses, said: “Consumers changed their shopping patterns during the snow, browsing online rather than on the high street and turning to local shops for essentials rather than making potentially treacherous journeys to out-of-town centres.

“This shift in behaviour is likely to prevail as soaring petrol prices become a real problem for hard pressed consumers in 2011.”