Retail sales falling at fastest pace since 2009, while wages climb

UK retail sales are tumbling faster than at any time since the height of the financial crisis as industry pay rises faster than the rest of the economy, two industry surveys revealed on Thursday.

In the year to October, retail sales plummeted to -36, the lowest since March 2009, according to the Confederation of British Industry's distributive trades survey, which was down from a +42 the month before and disappointed expectations for further expansion.

For November, the CBI found retailers are expecting sales volumes to stabilise but for orders to decline further though at a slower pace.

Orders placed with suppliers also dropped at the fastest rate since March 2009, with retailers reporting that, overall, sales for the time of year were "slightly below" seasonal norms, with growth in online sales slowing but expected to pick up slightly next month.

Recreational goods and hardware & DIY were the best performing sectors, with the main falls coming from department stores and specialist food & drink.

Meanwhile, wholesalers continued to report above-average growth in sales volumes and a similarly strong increase expected next month, while motor traders saw a sharp decline in sales volumes, and expect a further fall in the year to November.

A survey from the British Retail Consortium also out on Thursday revealed that the industry saw pay rise at a faster rate than the rest of the economy.

Average hourly pay in retail was up 4.6% in 2017, compared to 2.9% growth for the UK economy as a whole, the BRC said.

“It’s clear retailers are beginning to really feel the pinch from higher inflation," said Rain Newton-Smith, the CBI's chief economist.

"While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.

“This is a critical time for a sector that employs three million people across Britain. The Government can give retailers, especially those on the High Street, some much needed relief in next month’s Budget by bringing forward the planned switch of business rates indexation from RPI to CPI.”

Helen Dickinson, chief executive of the British Retail Consortium, said the new pay data "highlights a stark contrast between rapid pay growth in retail with the rest of the economy", with the National Living Wage playing a part in driving this exceptional growth in wages.

"However, far from being the whole story, strong productivity growth, fuelled by technological change has also contributed to year on year pay increases above the UK average, at all levels of the retail industry. And, despite fears to the contrary, there’s little evidence that these wage increases are coming at the expense of other wage-related benefits.

“Maintaining productivity gains will be crucial to sustaining wage growth as employers contend with further changes to statutory employment costs."

Economist Sam Tombs at Pantheon Macroeconomics said the survey "often is misleading", having signalled a surge in the official measure of retail sales in September, when year-over-year growth actually slowed to 1.6%, from 2.6% the month before.

"The survey often is a poor guide because it includes only 49 retailers reporting whether sales are higher or lower than a year ago solely in the first two weeks of the month. As a result, we always place more weight on less timely data from the BRC and Visa in forecasting the official measure of sales.

"That said, compelling reasons exist to expect consumers to tighten their purse strings over the final months of 2017."

He noted that with households facing falling real wages, confidence being undermined by the prospect of higher interest rates, and banks are moving to restrict the supply of unsecured credit, he thinks spending won’t grow much if at all in the final quarter of the year, ensuring that GDP growth fades again.