- CBI’s distributive trades survey for November shows the closure of non-essential retailers has had a negative impact on retail sales. However, the decline in the sales balance was much less than in April, supporting the belief that the impact of the latest lockdown on economic activity will be less than seen earlier in the year.
- The CBI’s sales balance reached a five-month low of -25% in November from -23% in October and an 18-month high of +11% in September. This compared to the balance reaching to -55% in April from -3% in March.
- However, the CBI survey only covers the period 27 October – 16 November, but the lockdown came into effect on 5 November and ends on 2 December.
- Retail sales may have been lifted in the first half of the survey period by consumers stockpiling ahead of the current lockdown or buying Christmas presents early.
- In November, thanks to the closure of non-essential retailers, online sales rose at the fastest rate since October 2018.
- The CBI survey indicates that retailers are cautious about sales prospects in December, with a balance of -2% expecting sales volumes to be up year-on-year.
- A concern for retailers is that even though they will be allowed to open after 2 December, footfall may be held back by consumer caution over COVID-19.
- Retail sales may also be limited in the near-term at least by weakened consumer fundamentals, notably increasing unemployment and limited earnings.
- On the positive side, low inflation should be supportive purchasing power while many consumers improved their financial position in Q2 when the household savings ratio rose to a record 29.1%.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The November CBI distributive trades survey was weak with retail sales negatively affected by the closure of non-essential retailers in England as part of the lockdown measures put in place from 5 November. The good news is the decline in the sales balance is much less than occurred in April after the first national lockdown.
“However, the CBI survey does not capture the whole impact of the lockdown as the closure of non-essential retailers will run through to 2 December, while the survey was carried out 27 October – 16 November. Indeed, sales may well have been lifted over the first half of the survey period by consumers stockpiling ahead of the lockdown, while there were also reports of consumers buying Christmas presents early.
“The CBI’s sales balance reached a five-month low of -25% in November from -23% in October and an 18-month high of +11% in September. The balance had previously reached -55% in April from -3% in March.
“Sales volumes were considered to be below average for the time of the year to the greatest degree since June.
“Online sales rose at the fastest rate since October 2018 as consumers could not visit non-essential retailers.
“Significantly, retailers were cautious about sales prospects in the key month of December. A balance of -2% expected retail sales volumes to be up year-on-year in December.
“Meanwhile, the simultaneously released quarterly distributive trades survey showed that retailers reported that employment fell further in the year to November (a balance of -32%), but the pace of decline eased compared with August (-45%), with a similar fall expected in the year to December (-31%). Investment intentions for the year ahead remain negative (balance of -12%), but less so than in August (-32%) and May (-55%).”
Howard Archer continues: “The retail sector will be relieved that non-essential retailers will be allowed to open in England after 2 December, and they will be hoping that consumers will be prepared to spend on Christmas presents as well as food and drink.
“A concern for retailers is that even though they will be allowed to open after 2 December, footfall may be held back by consumer caution over COVID-19. GfK reported that consumer confidence has fallen back to a six-month low in November.”
Howard Archer adds: “The fundamentals for consumers are likely to be pressurised 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 782,000 over April-October (according to Pay as You Earn Real Time Information data) – while others will be concerned that they may face redundancy in future.
“The unemployment rate has been trending up at an increased rate recently, reaching 4.8% in the three months to September, and it looks likely to rise further despite the Chancellor extending the furlough scheme until the end of March. The EY ITEM Club suspects the unemployment rate could get up to 7.0% in the first half of 2021.
“Meanwhile, earnings look set to remain limited with many companies looking to freeze pay, while furloughed workers will see their pay reduced to 80% of their full pay.
“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 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.”