MTS Insights

Retail sales volumes fell at a steep pace in the year to August, according to the CBI’s latest quarterly Distributive Trades Survey. Next month, sales are expected to decline at a slower rate.

The prolonged period of weak demand continues to weigh on retailers’ sentiment, which fell at a faster pace in August.

Retailers expect to continue cutting back on investment in the year ahead, but to the least extent in over two years. Headcount in the retail sector fell at a slower pace in the year to August and is expected to decline at a broadly similar rate next month.

Key findings included:

• Retail sales volumes fell at a steep pace in the year to August (weighted balance of -48% from -26% in July). However, retailers expect the rate of decline to slow in September (-22%).
• Retail sales for the time of year were judged to be “poor” in August, to a greater extent than last month (-26% from -18% in July). September’s sales are set to fall short of seasonal norms to a similar degree (-29%).
• Sentiment amongst retailers fell at a quicker rate in August (-29% from -15% in May).
• Retail selling prices grew at a quicker pace in the year to August but remained below the long-run average rate (+35% from +28% in May; long-run average of +41%). Retailers expect price inflation to accelerate substantially next month (+53%).
• Retailers expect to reduce capital expenditure over the next 12 months (compared to the previous 12) but to the least extent since February 2024 (-16% from -52% in May; long-run average of -4%).
• Retail employment declined at a slower pace in the year to August (-19% from -30% in May). Headcount is expected to fall at a broadly similar rate next month (-16%).
• Total distribution sales volumes fell at a strong rate in the year to August (-27%), after stabilising last month (+1%). Firms expect the rate of decline to ease next month (-16%).
• Online retail sales volumes contracted at a rapid rate in the year to August (-43% from -47% in July). Sales are expected to fall at a similarly fast pace next month (-40%).
• Retail orders placed upon suppliers continued to decline at a firm pace in the year to August (-29% from -31% in July) and are set to be cut back at a faster rate next month (-40%).
• Retail stock volumes relative to expected sales softened below their long-run average position in August (+9% from +16% in July; long-run average of +17%). Stock positions are expected to hold steady next month (+9%).
• Wholesale sales volumes fell at a moderate pace in the year to August (-13%), after being broadly flat last month (+2%). The rate of decline is set to remain steady next month (-10%).
• Motor trades sales volumes contracted at a firm pace in the year to August (-26%), following a sharp increase in July (+57%). Sales are expected to decline at a broadly unchanged rate month (-27%).

Martin Sartorius, Lead Economist, CBI, said:

“Retail firms grew more downbeat in August as they grappled with sharply falling sales volumes. These weak trading conditions, which were echoed across the broader distribution sector, continued to weigh on retailers’ investment and hiring plans.

“With parliament returning next week, thoughts will start turning to the Autumn Budget and the steps that the Government can take to restore confidence across retail and the broader distribution sector.

“Meaningful business rates reform is long overdue, with firms desperate for a fairer system that
rewards – rather than penalises – investment and growth. The Government should also look to cut Employer NICs to support hiring and ensure the sector can continue to provide job opportunities, particularly for young people.”