Retail investment sinks to weakest since 2012 - CBI
By Oliver Haill
Date: Friday 22 Feb 2019
(Sharecast News) - UK retailers have had a reasonable February, according to the CBI's monthly survey of the sector.
The CBI distributive trades report found another month of equilibrium between companies saying sales volumes were higher than normal and those saying they were lower than normal, led by footwear and DIY retailers. This contrasts with the strong official data for January last week, where the Office for National Statistics said retail sales grew 1.0% month-on-month and 4.2% year-on-year.
Retail investment plans also took a hit, falling to their weakest since 2012, amid the uncertainty of the Brexit situation.
However, this uncertainty is being balanced to a degree by the increase in real wages as earnings growth has overtaken inflation in recent months.
Although the CBI survey sales volume balance was unmoved at zero, below the consensus forecast for a reading of +5 and last year's average of +11, most retailers said the volumes were around average for the time of year, for the first time since September.
Orders placed on suppliers also rose modestly and are expected to increase next month, with sales volumes expected to remain normal for the time of year.
Retailers' expectations regarding the business situation have stabilised for the first time in a year, with sales volumes expected to jump in March. Growth expectations at the highest since late 2015.
Anna Leach, the CBI's head of economic intelligence, said: "The High Street has seen a slow start to the year, with year-on-year sales volumes unchanged again this month. Although real earnings growth is higher, consumer confidence has been ebbing away, keeping a lid on demand."
However, the CBI's survey has much more downbeat than official figures over the past six months, pointed out economist Sam Tombs at Pantheon Macroeconomics, suggesting that the continued weakness of the reported sales balance in February "should be taken with a pinch of salt".
A balance of zero, he said, would be consistent on past form with meagre year-over-year growth in the official measure of sales volumes of about 1.5%. He said the sales for the time of year balance "has a better, but still weak, relationship with the official data than the main balance" and is "probably is much closer to the truth, given that households' real incomes currently are being boosted by a decade-high rate of nominal wage growth, low inflation and robust employment gains".
Tombs predicted that this consumer factor will drive GDP growth, albeit modestly, in the first quarter of the year.
Finally, he noted that consumer-facing firms were not undertaking much stockpiling ahead of the March Brexit deadline, with balances of retailers and wholesalers reporting that stock levels are more than adequate to cover expected demand were low at +9 and +8, respectively, both below last year's average levels of +19 and +13.
Howard Archer, chief economic advisor to the EY ITEM Club, said it was notable that consumers seem to be timing their purchases to get the best value, with spikes in both January and November amid January clearance sales and Black Friday discounts.
While real earnings growth is offers a hopeful note for retailers, Archer said a number of factors may limit consumer spending: "Consumer purchasing power is still limited compared to past norms while confidence is weak. Furthermore, with the savings ratio being very low, consumers may at be keen to avoid further dissaving - especially given current major uncertainties. Meanwhile, lenders have cut back on the availability of unsecured consumer credit."
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