UK retail sales fall more than expected, CBI survey finds

Retail sales slowed more than usual in February and expectations for the month ahead were the weakest for three years, the CBI’s latest quarterly Distributive Trades Survey found.

The balance of reported sales volumes fell to +10 in February from +16 in January, when volumes were boosted by seasonal sales discounts, and worse than the consensus forecast for a figure of +12.

Reported sales were considerably below the 2015 average of +24, with retailers downbeat near-term outlook reflected in an expected sales balance down to +2 from +10 the month before, the lowest level since May 2013.

In the grocery sub-sector, expectations for growth for the month ahead fell to their weakest in nearly three years, as tough trading conditions continue to exert pressure on the sector.

Results were a "little below average" for the time of year, the CBI maintained, with recruitment growth also slowing but remaining well above average rates with a similar rise expected next month.

Retailers planned to slightly scale back investment spending in the year ahead, following two quarters when firms expected to raise capital spending.

On the upside, the survey of 124 firms found orders placed on suppliers were unchanged, which was better than expectations.

Moreover, respondents expect a decent improvement in business conditions over the next three months.

“Overall, conditions remain challenging for retailers," said Rain Newton-Smith, the CBI's director of economics.

"Although sales have continued to grow and optimism has risen, expectations for sales growth are lacklustre and retailers are still wary of investing. And unreformed business rates are making it tougher for retailers to open up new shops on the high street.

“But retailers still stand to benefit from the low level of inflation and strong job creation across the economy, which should continue to support household spending.”

Economists noted that reported sales balance is often very volatile and that seasonal problems may be affecting the survey.

"Nonetheless," said Sam Tombs at Pantheon Macroeconomics, "the tighter fiscal stance, rising inflation and slower employment gains will ensure consumers’ real incomes grow at a slower pace this year. With the household saving rate extremely low, spending growth therefore is very likely to fade in 2016."

While the fundamentals for consumer spending still look relatively heathy, Howard Archer at IHS Global Insight said it remains to be seen if "mounting uncertainty ahead of the June referendum on EU membership causes consumers to become more careful in their spending".