Retail sales rise by less than expected, CBI distributive trades survey shows

Retail sales volumes fell short of market expectations, according to the results of March's monthly distributive trades survey from the Confederation of British Industry (CBI).

A total of 34% of respondents said volumes were up on a year ago, and 15% said they were down, giving a rounded balance of +18% in the total sales index, below consensus forecasts of +20%.

Grocers still feeling the heat from stiff price competition

Sales recovered following a tough month in February for retailers, when the total sales index hit 1%, and CBI's director for economics, Rain Newton-Smith, said she expected solid growth to continue through Easter.

The average reading in the fourth quarter of 2014 was +40%.

“The outlook ahead is looking bright, with household incomes buoyed by zero inflation and improving pay packets, which will continue to encourage spending," the CBI director also said.

Nonetheless, at +21%, and down from a reading of +27% in the prior month, expectations for sales in April were at their lowest since July last year.

Sales were flat among grocers, albeit after a sharp drop (-20%) in February.

“However, the retail sector isn’t in the clear yet, with some companies, especially food retailers, still feeling the heat from stiff price competition,” Newton-Smith added.

Commenting on the figures, Dr.Howard Archer, chief UK+European economist at IHS Global Insight said: “Where any deflation could become a problem for the UK is if it caused employers to either hold off from granting pay increases or award very small ones […] it could squeeze consumers significantly when inflation starts to move back up which seems likely later this year (especially if inflation rises markedly rather than gradually as generally expected).

Nonetheless, Dr.Archer added: “it is likely that the increasing tightening of the UK labour market will ensure that pay does move up.”