UK retailers are bracing for job cuts and reduced investment in the coming months, a report by the Confederation of British Industry says.
These are signs of a deepening decline in consumer spending.
The CBI’s retail activity barometer has fallen for the fourth consecutive month in August, and reached lowest level since March 2021.
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This decline is as a direct result of the impact of rising interest rates on household budgets.
The CBI’s survey found retailers expect a continuation of poor trading conditions in the months ahead.
It’s led to cutbacks in orders from suppliers.
Retail sales plummeting
Martin Sartorius, a principal economist at the CBI, said: “Retail sales in August fell at their quickest pace in over two years, culminating a summer that many retailers would rather forget.
“Against a backdrop of rising interest rates and weak demand, retailers foresee cuts to investment over the next year, while employment is expected to fall again next month.”
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With mounting concerns about rising interest rates and weakening demand, retailers are preparing to reduce investment over the next year.
However, employment in the sector would decline further in the coming month.
Retail sales plummeting
Retail sales represent less than half of total consumer spending, not including dining out, hotel stays, and car purchases.
However, economists view the consistent drop in retail spending as a consequence of the 14 interest rate hikes by the Bank of England since December 2021.
Bad summer weather has also affected sectors like clothing and footwear, where retailers have struggled to clear their summer inventories.
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The CBI’s survey assessed retailers’ sales volume compared to the previous year.
The balance of those reporting improved business versus those reporting a decline stood at -44 percentage points in August.
This marked a deterioration from the -25 point shortfall observed in July and a significant drop from the +5 point balance reported in April.
British Retail Consortium’s recent report found retailers resorting to substantial discounts to attract hesitant consumers.
The CBI noted only tentative evidence of declining prices.
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Retailers are questioned every three months about price trends.
In August, a balance of +73 percentage points indicated rising prices.
This was slightly down from the +77 point balance recorded in May and the +80 points recorded in February.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “August has been a washout for the high street as shoppers have turned increasingly cautious, with households’ budgets facing a big squeeze.
“Already, the Office for National Statistics 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.”
