UK retail sales growth grinds to a halt in February

British retailers suffered a sharp slowdown this month with business falling at supermarkets and department stores as January sales drew to a close, according to a business survey.

The latest snapshot of retailers from business group, the CBI, showed sales barely rose on a year ago, a much worse performance than City economists and retailers themselves had been expecting. Echoing other signs of pressure on retailers as they resort to discounting to attract consumers, the survey showed prices and headcount falling.

In the survey of 62 retailers, 30% of respondents reported sales volumes were up on a year ago, while 29% said they were down, giving a balance of +1%. That was the lowest reading since November 2013 and below retailers’ expectations of +42% in January’s survey. Economists polled by Reuters had forecast sales growth would slow only slightly in February, predicting a balance of +34 in February after +39 in January.

The report pointed to more tough trading conditions in the months ahead, with orders from suppliers falling this month, investment intentions being scaled back and retailers planning to cut more staff. The CBI said companies remain optimistic sales volumes will grow in March but that “expectations have moderated significantly from recent highs”.

Echoing the latest official figures showing UK inflation at a record low, the CBI added that average selling prices fell for the first time since May 2006, with only a slight rise expected next month.

Rain Newton-Smith, CBI director of economics said:

After a strong start to the year, retailers were disappointed by the unexpected halt in sales growth. In particular, continually heavy discounting in the grocers sector seems to be weighing on activity.

Looking ahead, the outlook for the retail sector is fairly positive, with the boost to household incomes from falling inflation likely to support spending ... However, as this survey shows, overall trading conditions on the high street remain challenging.”

The survey suggests retailers expect sales volumes to grow next month, with 44% expecting them to rise and 17% to fall, giving a balance of +27%.

The CBI said some sub-sectors recorded growth in sales volumes, including chemists. But grocers’ sales fell on a year ago as did those of non-specialised stores, including department stores, and clothing shops.

Howard Archer, chief UK at IHS Global Insigh, said the pattern, with department stores among the weakest performers, suggested that consumers “remain very keen for bargains” now that most of the winter sales have ended.

However, he added there was reason to believe sales would pick up as household finances benefit from lower inflation:

There is no getting away from the fact that CBI’s distributive trades survey for February is substantially weaker than expected. Even so, we suspect it is primarily a case of consumers taking a breather after spending at a robust rate through the fourth quarter...

Despite the disappointing February CBI survey, the prospects for retail sales and consumer spending overall for 2015 still look largely bright. Households purchasing power is currently getting a double leg up from extremely low inflation as well as rising earnings growth. And there should be more improvement in purchasing power to come over the coming months, along with further rises in employment.”