Tough climate for retail in CBI snapshot but it increases chances interest rates won’t go as high
- CBI distributive trades survey highlights increasingly tough conditions for retail.
- The net balance of retail sales in August tumbled to -44%, down from – 25% in July.
- Given the tough climate, it’s little surprise finding a buyer for Wilko has proved so elusive.
- The silver lining is that interest rates may not have to rise as high as previously forecast, given demand in the economy appears to be falling more quickly.
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘”August has been a washout for the high street as shoppers have turned increasingly cautious, with households’ budgets facing a big squeeze. The CBI’s snapshot of the retail scene shows darkening skies, with sales falling at a much quicker pace than last month, and at the fastest rate since March 2021. Already, the ONS retail sales reading for July showed a sharper drop than expected. Certainly, the wet weather hasn’t been helping, but positive sentiment is not just being drowned out by the rain, but by the chill factor of higher interest rates.
As more homeowners are pushed into painfully high mortgage payments, and others brace for a similar fate in the months to come, it seems many consumers are increasingly anxious about splashing the cash. In this climate, it’s little surprise that calls for a buyer for Wilko have been met with silence. Although value retail is clearly well positioned to benefit from increasingly cash-strapped consumers, the chain, with its large stores in expensive high street locations, was simply not nimble enough faced with its agile rivals, who were more focused on retail parks and cheaper spots in town and city centres. Getting the product mix right on the high street right now is crucial, especially with the competition still so ferocious from online stores.
This further deterioration in retail sales does not bode well for the UK’s growth prospects, given how dependent the economy is on our personal consumption of goods and services. Consumer spending is worth around 60% of GDP, so this deteriorating picture of retail sales is being seen as another sign that the UK is heading for a mild recession.
The silver lining being glimpsed in the rain clouds above the retail landscape is that the conditions are being seen as fresh evidence of falling demand in the economy, so borrowing costs might not have to go as high. Already, interest rate expectations had been dialled back, given yesterday’s PMI reading, indicating a sharp slowing of business activity in the UK this month. The pound has dropped back against the dollar, down to $1.26, reflecting expectations that rates might not have to be pushed up quite so far.”
