Britain’s retailers are planning to axe jobs and cut investment over the coming months as signs emerge of a deepening slump in spending by consumers, the latest snapshot of high street and online activity has shown.
In yet another sign of the impact of high interest rates on household budgets, the CBI said its barometer of retail activity had fallen for a fourth month in a row in August to stand at its lowest level since March 2021.
The employers’ organisation said retailers saw no letup in the poor trading conditions over the coming months and were cutting back on orders with suppliers.
Martin Sartorius, a principal economist at the CBI, said: “Retail sales in August fell at their quickest pace in over two years, culminating a summer that many retailers would rather forget.
“Against a backdrop of rising interest rates and weak demand, retailers foresee cuts to investment over the next year, while employment is expected to fall again next month.”
Retail sales account for less than half of total consumer spending because they exclude items such as eating out, stays in hotels and car purchases.
But while there have been some indications of a shift in consumer behaviour towards spending on experiences, the steady decline in retail spending detected by the CBI’s distributive trades survey will still be seen by economists as evidence of the impact of the 14 Bank of England interest rate increases since December 2021.
Poor summer weather has also hit sectors such as clothing and footwear, where retailers have struggled to shift summer stocks.
The survey asked retailers whether sales volumes were up, down or unchanged on a year ago and found the balance of those recording an improvement in business compared with those registering a decline stood at -44 percentage points in August. This was weaker than the -25 point shortfall recorded in July and well down on the +5 point balance seen in April.
While a recent survey from the British Retail Consortium lobby group found retailers offering deep discounts to woo reluctant consumers, the CBI said there was only tentative evidence of prices coming down.
Retailers are asked every three months whether prices are rising or falling and in August a balance of +73 percentage points said they had risen. That was slightly down on the +77 point balance recorded in May and the +80 points registered in February.
Susannah Streeter, the head of money and markets at the financial services company Hargreaves Lansdown, said: “August has been a washout for the high street as shoppers have turned increasingly cautious, with households’ budgets facing a big squeeze.
“Already, the Office for National Statistics retail sales reading for July showed a sharper drop than expected. Certainly, the wet weather hasn’t been helping, but positive sentiment is not just being drowned out by the rain, but by the chill factor of higher interest rates.”
Sartorius said the chancellor, Jeremy Hunt, could help retailers by using the autumn statement to create a stable, investment-focused tax regime.
