More gloom on the high street

Feb 27 2008 by Our Correspondent, Western Mail

HOPES of better news from the high street were dashed yesterday after a survey showed sales growth grinding to a halt in February for the first time in more than a year.

The CBI’s latest distributive trades survey showed a balance of 3% of firms reporting a fall in year-on-year sales volumes during the first half of the month.

The balance measures the percentage of positive respondents against the percentage of negative ones.

It is the first time more retailers have reported falling sales than rising since November 2006. Last month companies told the CBI they were expecting to see a sales pick-up in February.

The survey also contained bad news for inflation-watchers at the Bank of England, with a balance of 50% of firms saying average selling prices were higher than a year ago – the highest level since August 1996.

Howard Archer, chief UK economist at Global Insight, said the survey would make “pretty dismal reading” for the Bank’s rate-setters.

He said it highlighted “the unappetising combination of significantly faltering economic activity and rising inflationary pressures that is currently dogging the UK economy”.

The worst-hit sectors this month were those relating to the housing market, the CBI said. Durable household goods saw a balance of 70% of firms reporting lower year-on-year sales volumes.

There were also drops for furniture and carpets, where 24% more firms reported worse business, and hardware, china and DIY, where the figure was 13%.

Although sales remained brisk for grocers and footwear stores, a balance of 2% of firms taking part in the survey told the CBI they were expecting sales volumes to fall next month.

Overall business sentiment also appears to have worsened, according to the CBI, with a balance of 9% of companies expecting a deterioration in the overall business environment over the next three months.

The CBI data follows last week’s official retail sales volumes figures for January from the Office for National Statistics, which showed a month-on-month rise of 0.8%.

Paul Dales from Capital Economics said the CBI survey suggested the ONS figures could have been a “last hurrah” for the sector as a consumer slowdown deepens.

He said, “The drop in the quarterly optimism balance suggests that retailers have detected an underlying weakening in demand.”

Ian McCafferty, CBI chief economic adviser, added, “The high street has been slowing gradually since last April and sales earlier this month were very subdued, while prices have risen strongly.

“Reflecting the increasingly tough conditions faced by the sector, business sentiment and investment plans have both taken a hit.”

The survey was conducted between January 29 and February 13, with 157 firms taking part.