Retail sales decline in May as UK firms brace for tougher quarter: CBI

Year-on-year (YoY) retail sales fell in May (weighted balance of -27 per cent from -8 per cent in April). Sales are expected to decline at a faster rate next month (-37 per cent). However, online sales fared better, with volumes rising in the year to May, following six consecutive months of falling or flat sales, CBI said in its latest report.

Retail sales in May were termed ‘poor’ for the time of year, though the assessment was less negative than in April (19 per cent compared to -31 per cent previously). Sales in June are expected to continue falling short of seasonal norms, with a projected balance of -21 per cent.

Against a backdrop of subdued demand, retailers plan to reduce investment and headcount. Retailers are expecting to significantly scale back capital expenditure in the next 12 months compared to the last 12 months.

The report stated that this cautious outlook shows only modest improvement on February's reading, which marked its weakest point since the onset of COVID-19 in 2020. The total employment fell in May compared to a year ago, with the pace of decline expected to accelerate in June.

The sentiment amongst retailers plummeted in May at the sharpest rate in five years, with a net balance of firms expecting their business situation to worsen over the coming quarter (-29 per cent from -19 per cent in February).

Retailers expect to scale back investment plans in the next 12 months (compared to the previous 12) to a significant extent (-47 per cent from -56 per cent in February).

Employment in retail declined at a broadly steady rate in the year to May, compared to the previous quarter (-15 per cent from -13 per cent in February). Headcount is expected to fall at a quicker pace next month (-20 per cent).

Retail selling price inflation picked up in the year to May but remained below the long-run average for the fifth consecutive quarterly survey (+35 per cent from +25 per cent in February; long-run average +41 per cent). Retailers anticipate selling prices to increase at an accelerated rate next month (+57 per cent).

Total distribution sales volumes (including retail, wholesale, and motor trades) declined in the year to May at the joint-fastest rate since January 2021 (-43 per cent from -26 per cent in April). Businesses anticipate another strong decline in sales for June, although at a slower pace (-38 per cent).

“This was a fairly downbeat survey and highlights some of the challenges facing the retail and wider distribution sector. In contrast to other recent retail data, this survey suggests parts of the sector are still struggling with fragile consumer demand, though online sales seem to be holding up better,” said Ben Jones, lead economist at CBI. “Firms are also feeling the impact of higher NICs and the National Living Wage increase. Our quarterly survey suggests that retailers are cutting back on hiring, scaling back investment and expect to increase selling prices at the fastest pace for over a year.”

“With the Spending Review on the horizon, the government has an opportunity to kickstart growth and incentivise investment, whether by reforming business rates, simplifying skills investment through the Apprenticeship Levy reform or expanding the Made Smarter Programme, further enabling digital adoption,” added Jones.

The report revealed a deepening slowdown across the UK retail and distribution sectors in May. Retail orders placed with suppliers fell sharply, with a net balance of -41 per cent, down from -24 per cent in April, and are expected to continue declining at a similar pace in June (-42 per cent).

Stock levels relative to expected demand dropped below the long-run average, easing to +12 per cent in May and projected to fall further to 9 per cent next month. The online retail sales volumes showed a strong recovery, rising by +37 per cent after six months of stagnation or decline, although growth is expected to moderate in June (+17 per cent).

Meanwhile, wholesale sales volumes saw their steepest fall since June 2020 at -48 per cent, which is expected to remain weak in June.

ALCHEMPro News Desk (SG)