CBI survey reveals slowdown in retail sales

Trading conditions on UK high streets have improved but retail sales growth was modest compared with last year, according to the CBI's latest Quarterly Distributive Trades survey.

The Distributive Trades Survey covers more than 20,000 outlets of firms responsible for 40% of employment in retailing and, according to the survey, retail sales were higher in May than a year earlier - the second consecutive month of year-on-year growth following a difficult start to 2003 when sales barely grew at all.

In the survey, 40% of respondents said sales were up while 26% said they were down. The balance of plus 14% follows a balance of plus 10 in the April survey, but compares with an average of minus one over the first three months of the year. For the second month in a row sales growth were better than expected and it is expected to be slightly stronger in June.

While sales growth was better than in the first quarter of 2003, it was well below the rates of growth seen last year and longer term averages. For the first time in six months, sales were described as above average for the time of year but that did not lead to a fall in stocks. These rose even though orders placed on suppliers were unchanged.

But on the downside, the survey found that retailers were taking a 'wait and see' approach to decisions about investment spending on things such as buildings, vehicles, equipment and fittings. Asked whether they would sanction more or less capital expenditure over the next 12 months, 25% said more but 45% said less. The balance of minus 20% indicates the weakest investment intentions since February 1992.

Alastair Eperon, Chairman of the CBI's Distributive Trades Panel and a director of Boots, said: "Spending over the past couple of months has been boosted by the good weather, low unemployment, the end of the Iraq conflict and the prospect of another rate cut. The underlying trend is creeping back up but it is still well down on the growth seen through most of 2002.

"Retailers expect some improvement in business conditions during the second half of the year but that is only relative to the weakness of their current situation. Nervousness about how sustainable the sales recovery will be has severely hit retailers' willingness and ability to commit to investment."

Sales were higher than a year ago in almost every retail sector. Shops selling footwear and leather goods saw the strongest growth followed by grocers, but the biggest year-on-year rates of decline were among furniture and carpet retailers and chemists.

Wholesalers sold slightly less in May than a year ago having seen year-on-year growth in the three previous months. They expect the decline in sales to continue reflecting the underlying uncertainty among retailers, but wholesalers were able to increase prices for the first time since last August and employment rose for the first time since November 2001.

The survey, with 272 respondents, was conducted between May 1 and May 20.

(GMcG)