Press release

23 Oct 2020 London, GB

CBI survey indicates retail sales softened in October – EY ITEM Club comments

The October CBI distributive trades survey points to retail sales losing momentum after a healthy performance through Q3.

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  • The October CBI distributive trades survey points to retail sales losing momentum after a healthy performance through Q3.
  • The CBI indicated that sales in October were negatively affected by mounting consumer caution amid rising COVID-19 cases – even though no new direct restrictions have been imposed on the retail sector (apart from in Wales).    
  • The CBI’s sales balance fell back to a four-month low of -23% in October from an 18-month high of +11% in September. Last week’s ONS data showed retail sales volumes rose for a fifth month running in September (by 1.5% month-on-month) and by a record 17.4% quarter-on-quarter over Q3. The full opening-up of the retail sector in June released pent-up demand, while the opening-up of the hospitality sector and other consumer services from early July further fuelled consumer spending.
  • October’s softer CBI survey suggests the environment for retail sales and consumer spending will be more challenging in the near term at least. A balance of 26% of retailers expect volumes to be lower year-on-year in November.
  • This reflects increased restrictions on activity, possible markedly rising unemployment, limited earnings and mounting consumer caution. Furthermore, the boost from pent-up demand has likely now largely run its course.
  • Reinforcing the suspicion that the outlook for retail sales is becoming increasingly challenging, GfK have reported a relapse in consumer confidence in October, while latest data from Springboard show shopper footfall across all retail destinations fell 3.1% in the week to 17 October – a fourth successive decline.

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“The CBI distributive trades survey points to retail sales losing momentum over the first half of October (the survey was carried out 28 September – 15 October) after ONS data showed that they had seen robust September growth.

“The CBI’s sales balance fell back to a four-month low of -23% in October from an 18-month high of +11% in September.

“Additionally, sales volumes were considered to be 22% lower in October than they would have been in ‘normal’ conditions without a pandemic.

“Across the retail sectors, the CBI reported grocery volumes were flat following five months of strong growth. Across non-food retail categories, department stores, clothing and ‘other normal goods’ were among those reporting falling sales, while retailers of furniture, DIY and recreational goods reported strong growth. Internet sales growth also picked back up to the long run average.

“Retailers were downbeat about near-term prospects. A balance of -26% expected retail sales volumes to be up year-on-year in November.”

Retail sales saw robust growth through Q3

Howard Archer continues: “Retail sales volumes rose a record 17.4% quarter-on-quarter over the third quarter, reinforcing belief that consumer spending played a leading role in the economy’s bounce back. The full opening-up of the retail sector in June released pent-up demand, while the opening up of the hospitality sector and other consumer services from early July further fuelled consumer spending.

“Retail sales performed strongly through the third quarter, with volumes rising 1.5% month-on-month in September; this was a fifth successive gain and followed increases of 0.8% in August and 3.9% in July. Consequently, retail sales volumes were up 4.7% year-on-year in September and were 5.5% above their pre-Lockdown February level.”

Outlook

Howard Archer adds: “October’s softer CBI survey suggests the environment for retail sales and consumer spending will be more challenging in the near term at least, following the strong third quarter bounce back. This reflects increased restrictions on activity, possible markedly rising unemployment, limited earnings and mounting consumer caution. Furthermore, the boost from pent-up demand has likely now largely run its course.

“Indeed, Gfk has reported that consumer confidence has fallen back in October to be at its lowest level since June. Meanwhile, latest data from Springboard show shopper footfall across all retail destinations fell 3.1% in the week to 17 October, which was a fourth successive decline. Furthermore, it has since been announced that non-essential retailers in Wales will be closed until 9 November.”

Howard Archer continues: “The fundamentals for consumers have taken a clear downturn as a result of COVID-19, and they are likely to remain under pressure in the near term at least. Many people have already lost their jobs despite the supportive government measures – as was highlighted by employment falling by 673,000 over April-September (according to Pay as You Earn Real Time Information data) – while others will be concerned that they may still end up losing their job as the furlough scheme ends this month.

“There is still a very real likelihood that unemployment will rise markedly when the furlough scheme ends. While the Chancellor's new job support measures are more generous and should have a significant impact in slowing job losses, the fact remains that many firms (especially in the hospitality sector) are finding life very difficult, especially with the rise in COVID-19 cases and renewed restrictions on activity. Consequently, they will still likely not take back many workers who are still furloughed.

“Additionally, many incomes have been affected. The latest ONS data show total average earnings were flat year-on-year in the three months to August, although they moved back into positive territory in August itself as more workers came off furlough.

“The prospects for pay look limited. While workers coming off furlough should be restored to full pay, many companies are looking to freeze or cut pay, and to reduce bonuses. For example, the latest survey by XpertHR released in late September reported that pay deals in the three months to August offered a median annual pay rise of 0%.

“Consumers may very well adopt a cautious approach to making major discretionary purchases given the uncertain economic environment.

“On a positive note, low inflation is supportive to purchasing power while four months of net repayment of unsecured consumer debt totalling £15.7 billion over March–June improved many households’ balance sheets and will help some consumers’ purchasing ability. Indeed, the household savings ratio increased to a record 29.1% in the second quarter from 9.6% in the first quarter.”