Retail sentiment sees sharpest fall since financial crisis

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Retailers expect the sharpest deterioration in business conditions since February 2009 in the coming months, according to the latest quarterly Distributive Trades Survey.

Whilst retail sales volumes and orders both fell at their fastest since December 2008 in the year to August, sales were only slightly below average for the time of year, and to the least extent in four months.

The survey highlighted that conditions have further deteriorated, with investment intentions for the year ahead staying negative for the sixth consecutive quarter, albeit to the least extent over this year so far.  Employment also fell for the eleventh straight quarter in August.

Within the sub-sectors, only non-store retailing posted a rise in sales, while volumes dropped across most other sectors, including in grocers, clothing and hardware & DIY.

Internet sales growth remained below its long-run average, with the rise similar to last month, and the same pace of growth expected to continue next month. Stock levels compared to expected sales spiked higher, matching the survey record high seen in November 2014.

Anna Leach, CBI Deputy Chief Economist, said: “Sentiment is crumbling among retailers, and unexpectedly weak sales have led to a large overhang of stocks. With investment intentions for the year ahead and employment down, retailers expect a chilly few months ahead.

“It is unsurprising that business confidence has deteriorated sharply, with a potential no-deal Brexit on the horizon. But retailers are also buckling under the cumulative burden of costs, including an outdated business rates system and the apprenticeship levy. Businesses will be looking for government action at the Budget in the coming months to alleviate some of these pressures.”

Elsewhere, wholesale sales volumes in the year to August fell at the quickest pace since April 2013, after seeing no growth last month, although orders placed upon suppliers saw the slowest decline in seven months. Motor traders also reported their fourth consecutive month of falling sales, but the decline was the slowest seen over this period so far.

Across the economy more broadly, growth has been volatile in the first half of 2019, driven by companies stockpiling ahead of previous Brexit deadlines and a change in the timing of car plant annual shutdowns. We expect the economy to grow modestly further ahead, though a no-deal Brexit would likely hit activity and financial markets significantly. For more detail, see our July economic forecast.

Key findings

Retailers

  • 10% of respondents reported that sales volumes were up on a year ago in August, while 58% said they were down, giving a balance of -49%
  • Retailers expect sales volumes to fall at a slower pace next month (-10%), with 14% expecting a rise and 24% expecting a fall
  • Sales were seen as slightly below average for the time of year, but to a lesser degree than last month, with 15% saying they were good, 54% saying they were average and 21% saying they were poor. This gave a rounded balance of -6%.
  • Orders placed upon suppliers fell at the quickest rate since December 2008, with 10% of survey respondents reporting an increase and 67% reporting a fall, giving a balance of -57%. Orders are expected to fall again in September, albeit at a slower pace (-29%)
  • 2% of respondents expect the business situation to improve over the next three months, with 27% expecting a deterioration, giving a rounded balance of -25%.
  • 16% of retailers intended to invest more over the next 12 months compared to the previous 12 months, whilst 35% expect to invest less, giving a balance of -19%.
  • Average selling prices compared to a year ago picked up somewhat (+67%), but are expected to grow more slowly next month (+35%).

Wholesalers

  • 16% of wholesalers reported sales volumes to be up on last year and 41% said they were down, giving a balance of -25%

Motor trades

  • 20% of motor traders reported sales volumes to be up on last year and 36% said they were down, giving a balance of -16%

Balances are subject to rounding.