UK retail sector reports subdued start to 2020

UK retail sales were flat in January, the Confederation of British Industry reported on Tuesday, as the new year got off to a subdued start.

According to the monthly CBI Distributive Trades Survey – published just ahead of the Bank of England’s latest decision on interest rates on Thursday – retail sales volumes posted no growth in the year to January, unchanged on the previous month at 0%. The consensus had been for modest growth of around +5%.

Retailers expected conditions to remain unchanged in the year to February, while orders placed with suppliers fell to -17% in January from -10% in December.

However, sales for the time of year came in at -7%, a notable improvement on December’s figure of -31%.

Internet sales growth was +46%, compared to +18% a month earlier, and was predicted to reach +50% in February.

Anna Leach, CBI deputy chief economist, said: “Both official data and business surveys are painting a picture of subdued activity for retailers. A challenging Christmas has extended into the new year, with little expectation of any improvement soon.

“2020 looks set to be another tough year for the sector as growth in household’s disposable income is set to remain modest, and retailers continue to battle longer-term issues, such as digital disruption and the cumulative burden of policy costs.”

Leach called on the Chancellor, Sajid Javid, to support retailers in the Budget by “fixing the broken business rates system”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the survey was “moderately encouraging”.

He continued: “At 0% the reported sales balance exceeds its 2019 average, -14%, while the sales-for-the-time-of-year balance recovered to -7%. On past form, the latter points to year-over-year growth in the official measure of retail sales volumes of about 2.5% in January.

“We continue to expect quarter-on-quarter growth in households’ real spending to average a solid 0.4% in the first half of 2020, buoyed by low inflation, steady job growth, a tax cut in April in the form of an increase in the threshold for NI contributions, and a reviving housing market.”

Howard Archer, chief economic adviser to the EY ITEM Club, said the survey pointed to “stable flat sales, suggesting that while the decisive election lifted consumer confidence, this has not immediately translated into higher spending”.

Tombs doubted the survey would impact the Monetary Policy Committee’s decision scheduled for later in the same week, arguing that it was a relatively small sample size.

The EY ITEM Club noted: “The Bank may be modestly disappointed that the survey does not signal a pick-up in retail sales, and the survey will likely fan expectations that the MPC could well vote to cut interest rates from 0.75% to 0.50%.

“It remains a very tight call, but we believe there are enough signs overall of improving economic activity for the MPC to sit tight and remain in ‘wait and see’ mode.”