The recent recovery in high street sales ran out of steam in the UK in April but a survey last Thursday said retailers were still hopeful of brighter times ahead.
Consumers are opting to spend on smaller treat purchases
A balance of six per cent of retailers said sales in the first two weeks of April were lower than a year ago, representing a decline from the previous month’s flat figure but still well up on the three-year low seen in January, business body the CBI said.
However, April’s figures came up against strong figures from the year before when they were boosted by fine weather, while hopes that sales will rise next month were the highest for more than a year.
This suggests that the overall picture for consumer spending is improving despite figures yesterday showing the UK slipped back into recession.
Inflation is set to fall over the course of the year and retailers hope this will weaken the squeeze on consumer spending and boost sales.
Judith McKenna, chairman of the CBI distributive trades panel and Asda chief operating officer, said: “The situation on our high streets remains fragile.
“Consumers are still holding off from buying bigger ticket items, and opting to spend on smaller treat purchases that give them a lift without breaking the budget.
“If as expected, inflation falls further later this year, we may see some growth in retail sales, but as long as high unemployment and sluggish wage growth dampen confidence, spending will remain tight.”
The CBI figures highlighted the pressure on supermarkets as the reading for grocery sales fell for the first time since November, reflecting shoppers cutting back to deal with rising food prices.
Furniture and carpet retailers reported a better performance for the third month in a row, while clothing and footwear saw solid growth.
Howard Archer, chief economist at IHS Global Insight, said the survey’s results were “modestlysofter than expected but far from disastrous”.
He added: “It supports the view that the economy is seeing modest underlying growth rather than contraction.
“However, the CBI survey does suggest that the growth upside is currently limited.”
But he believes there is a “very real worry” that fragile consumer confidence will take a further hit from the news that the UK is officially back in recession, which could hurt retailers.
Meanwhile, demand for borrowing from consumers and businesses remains weak as people try to pay off their debts, a high street banking report said last Thursday.
Consumers made £7.2 billion (€8.8 billion) in new purchases on credit cards in March amid strong sales by retailers, but they also made £7.4 billion (€9.1 billion) of repayments, continuing a long-term trend of trying to pay their debts down, the British Bankers’ Association (BBA) said.
The monthly report was released after official figures yesterday showed the UK is in a double-dip recession after the economy failed to grow significantly over the past year.
The BBA report said: “Demand from consumers for loans and overdrafts remained weak and repayment of this unsecured borrowing continues to outweigh new lending.
“This behaviour has resulted in a constant contraction of borrowing levels over the past three years.”
Consumers made a net repayment of £100 million (€122 million) in personal loans and overdrafts in March, while the number of mortgage approvals for house purchase dropped back to 31,888, following some increases earlier this year.
The study said the mortgage figures were due to the ending of a two-year stamp duty concession for first-time buyers, which saw a rush from this sector of the market to complete deals.
A recent Bank of England report said the proportion of mortgage loans being approved has fallen as lenders tighten their borrowing criteria amid the weak economy.
Mortgage availability generally is expected to decrease in the coming months.
The BBA report said demand for borrowing from industry remained “subdued” in March as concerns for the economy impacted on businesses’ confidence and growth.
Net lending to non-financial companies fell by £3 billion (€3.7 billion) in March, following a drop of £700 million (€857 million) in February.
BBA statistics director David Dooks said: “While banks have funds to lend, demand for business credit is low.
“The high street banks are also helping individual customers by providing £768 billion (€941 billion) for house purchase and £82 billion (€100 billion) in unsecured credit, although, as with business, demand is low and people are repaying their borrowing where possible.”