Sales boost fails to lift high street gloom

Published on Tuesday 29 March 2011 22:41

HIGH street sales picked up this month, according to the CBI, but retail experts remain anxious about "subdued" levels of growth as shoppers avoid splashing out.

According to the business group's latest distributive trades survey, which offers an early indication of monthly sentiment, more retailers than expected reported year-on-year sales growth for March while the pick-up in sales was also at a faster rate than in February.

While economists had been expecting a majority of retailers to complain of no growth for the month, concern remains that the high street is heading for another prolonged period of restrained spending as households absorb high inflation and brace themselves for the effects of public sector cutbacks.

Howard Archer, chief UK and European economist at IHS Global Insight, pointed out that the index for March, which showed a balance of +15 per cent of retailers experiencing improved sales, was still the second- lowest since June and "substantially below" the peak levels seen in late 2010.

He also warned that a worrying number of high street operators deemed sales to be poor for this time of year.

"The CBI survey does little to dilute belief that consumers are reining in their spending appreciably as their purchasing power is squeezed by high and rising inflation in tandem with ongoing muted wage growth overall," Archer said yesterday.

Ian McCafferty, CBI chief economic adviser, said: "Look beneath the surface and conditions remain tough on the high street. Even the best-performing sectors - namely grocers and clothing - have seen volumes continue to fall.

"With inflation edging higher and earnings growth only modest, household budgets are under increasing pressure. Consumer demand will remain weak in the coming months."

Meanwhile, figures for the services sector in January, also published yesterday, by the Office for National Statistics (ONS), showed growth hitting the fastest monthly rate for almost nine years.

However, initial enthusiasm quickly wore off as economists pointed out that the statistics were distorted by the poor reading for weather-hit December.

The ONS admitted that, excluding weather distortions, there would have been flat or no growth for the two months as a whole. Nevertheless, the 1.3 per cent month-on-month rebound in Britain's most important sector in January should help first-quarter GDP figures after the economy recorded a shock decline of 0.5 per cent in the closing three months of 2010.

Based on current information, Citi economist Michael Saunders said the economy could have expanded by as much as 0.8 per cent in the first quarter.

"Using available data for industrial production, services output and construction output in early 2011, at this stage, our forecast is for Q1 growth of 0.6-0.8 per cent quarter on quarter."