Retail sales drop sharply in January, CBI's distributive trades data shows

Retail sales volumes dropped sharply in January, especially for supermarket groups, according to data released on Thursday.

The CBI’s distributive trades survey for January showed a reported sales balance down to a four-month low of -8 from +35 in December, while the market had expected only a slight dip to +27.

While the CBI said retailers considered the lower sales volumes to be broadly in line with the average for the time of year, after the above-average end to 2016, economists said it indicated the beginning of a decline in consumer spending.

Retailers mostly expect sales to grow in February, with a balance of +13% seeing sales rise year-on-year in February, although this is the weakest expectations balance since October.

“Grocers have reported a disappointing start to the year, but other sectors appear to have performed better," said CBI head of surveys and economic analysis Anna Leach.

"This month’s decline was mostly driven by falling food sales and seems set to be short-lived, with retailers expecting sales to return next month."

The supermarket sector saw sales fall 65%, the fastest pace since August 2004.

Sales volumes were flat in a number of sectors, including specialist food and drink, footwear and leather, and furniture and carpets, while strong growth was reported in clothing of +53% and department stores of +52%.

The CBI data follows official numbers from the Office for National Statistics showing that retail sales volumes fell back 1.9% month-on-month in December – although sales were robust over the fourth quarter as a whole.

Leach conceded that "headwinds are on the horizon", as the major weakening in the pound was likely to push up inflation over 2017, "which will be a real squeeze on household incomes" so retailers "will be under the cosh for some time yet”.

Economist Howard Archer at IHS Markit said while not too much weight should be attached to one survey, with sales flat in several sectors, continuing growth in others, and expectations for a rise in February, he said there were growing signs that consumers may be starting to rein in their spending.

"Consumers benefited from largely favourable fundamentals through 2016, notably relatively decent purchasing power and high employment. However, consumer purchasing power has started to be diluted. While earnings growth improved modestly in the latter months of 2016, consumer price inflation was picking up faster."

Sam Tombs at Pantheon Macroeconomics said the CBI balance "suggests consumer spending won’t play a pivotal role in driving GDP growth again in Q1".

He noted that retailers appeared to have been caught out by the weakness of demand, with the proportion reporting more than adequate stock levels rose to its highest level since December 2014.

On the industry's optimism about expect bouncing in February, he said "there is no obvious reason to expect spending to bounce back".

"It increasingly seems that the strength of consumption in Q4 reflected households bringing forward planned expenditure from 2017, because they anticipated price rises. If so, the retail sales data likely will be very weak over coming months".