High Street sales drop sharply in February

VAT rise and increased raw material costs drive up price inflation and slow spending.
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Annual growth in sales volumes slowed in February and retailers do not expect any increase next month.

The CBI’s latest quarterly Distributive Trades survey showed that 36 per cent of retailers saw the volume of sales rise in the two weeks to February 16th, while 30 per cent said they fell, compared with a year ago.

The resulting balance of +six per cent was well below expectations (+25 per cent) and the slowest pace of year-on-year growth in eight months.

At the same time price inflation on the High Street has risen considerably in February, with 77 per cent of retailers saying that average selling prices rose on a year ago, and only four per cent saying they fell.

That gives a balance of +73 per cent, the highest since 1991, up from +45 per cent in November (this question is quarterly). Prices are expected to rise at a similar pace in March (+74 per cent).

Looking forward, retailers predict sales to be at the same level as a year ago, which was flat and that this weaker trend will continue.

A balance of -six per cent expect their situation to deteriorate over the next three months, with 15 per cent of retailers saying that the situation would improve and 22 per cent saying it would get worse, leaving 63 per cent that said it would remain the same.

Lai Wah Co, CBI head of economic analysis, said: "The positive effect of seasonal discounting on the High Street that previously boosted sales has now waned. Retail sales are likely to be more challenging over the coming months.

“At the same time, prices are set to rise considerably as the VAT increase and the soaring cost of raw materials are passed on to shoppers."

Judith McKenna, chair of the CBI Distributive Trades Panel and Asda chief Financial officer, said: "The VAT increase coupled with the rise in the cost of many raw materials means that retailers are working even harder to deliver value to our customers on groceries and everyday items.

"With family budgets under increasing pressure, many shoppers are putting the purchase of big-ticket items on hold for the time being."

The volume of reported sales for the time of the year was also poor (-12 per cent). Similar, lower than normal sales are predicted in March (-11 per cent).


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