- The CBI distributive trades survey pointed to a marked pick-up in early December sales as non-essential retailers were allowed to re-open. The CBI's sales balance increased to a three-month high of -3% in December from a five-month low of -25% in November
- This suggests that many retailers were relatively quick in making up for the sales lost during the November lockdown. ONS data shows that retail sales had shown considerable resilience, helped by a strong pick-up in online sales, strong supermarket sales and the diversion of some spending away from the hospitality sector
- The renewed closure of non-essential retail in Tier 4 areas follows an improvement in consumer confidence in the first half of December and increased shopper footfall. Online sales may be unable to fully compensate and retailers that have relatively poor online capabilities will face a particular challenge
- The CBI survey indicates that retailers had already been downbeat about sales prospects in January before the imposition of tighter restrictions, with a balance of -33% expecting sales volumes to be up year-on-year in January. This primarily reflected concerns that a likely labour market decline will affect consumer spending
- With the economy seemingly returning to growth in early December, the EY ITEM Club had forecast that the GDP contraction in Q4 would be limited to just over 1% quarter-on-quarter. However, new restrictions mean the Q4 contraction now looks likely to be closer to 2% quarter-on-quarter
- The economy will face a challenging start to 2021. The EY ITEM Club still expects the economy to ultimately benefit from the rollout of the COVID-19 vaccine in 2021 but the current forecast of 6.2% GDP growth in 2021 may be optimistic. The forecast assumes there will be a UK-EU trade deal agreed, although this is currently an extremely tight call
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The December CBI distributive trades survey points to a clear bounce back in retail sales over the first part of the month following the re-opening of non-essential retailers after the lockdown in England.
“The balance's improvement was likely limited by non-essential retailers still being closed for the first 10 days of the survey period. However, sales volumes in December were considered to be above average for the time of year to the greatest extent since March 2019.
“The CBI’s sales balance rose markedly to a three-month high of -3% in December from a five-month low of -25% in November. It had previously fallen to -25% in November from -23% in October and an 18-month high of +11% in September. The balance had been as low as -55% in April when non-essential retailers were closed by the March lockdown.
“Online sales remained robust in December after rising in November, with the balance at +51% (+55% in November). The long-run average is +46%.
“Notably, retailers were already downbeat about sales prospects in January even before the latest tightening of restrictions, which includes non-essential retailers closing in Tier 4 regions. A balance of -33% expected retail sales volumes to be up year-on-year in January, primarily due to concerns that a likely labour market decline will affect consumer spending.”
“The CBI indicated that the sales performance varied significantly across sectors, specifically reporting that ’while grocers, furniture vendors and retailers of ‘other normal goods’ (cards, flowers and jewellery, etc) saw strong growth; clothing, footwear and department stores continued to report that volumes were lower than a year earlier.’”
Retail sales fell in November but showed resilience
Howard Archer continues: “The latest ONS data showed retail sales volumes fell 3.8% month-on-month in November following the closure of non-essential retailers. Despite the month-on-month fall, retail sales volumes were still up 2.4% year-on-year in November, although this was a slowdown from a gain of 5.8% year-on-year in October. Retail sales volumes in November were still 2.6% above February’s level before they were affected by the first lockdown.
“The ONS reported that November clothing sales volumes fell 19.0% month-on-month, alongside a fall of 16.6% in fuel sales. The only sectors to see monthly sales growth in November were food stores (3.1%) and household goods stores (1.6%). Reports from retailers indicate that earlier purchases of Christmas presents and home DIY goods had boosted household goods buys.
“November’s month-on-month fall was the first decline in retail sales volumes for seven months and followed a robust gain of 1.3% month-on-month in October. The decline was mitigated by a marked pick-up in online sales, robust spending in supermarkets and other essential retailers and seemingly some diversion of spending away from the hospitality and leisure sectors as they were closed or severely limited in their operations.
“Notably, November’s fall in retail sales volumes was substantially less than the 18.2% month-on-month decrease in April that followed the March lockdown."
“Retail sales have been supported in recent months by the release of pent-up demand following the lifting of restrictions on non-essential retail. While consumer fundamentals have weakened amid rising unemployment and limited earnings, the furlough scheme has provided appreciable support. Additionally, the household savings ratio increased to a record high of 29.1% in the second quarter, increasing the purchasing power of many consumers."