Retailers give gloomiest forecast on record

As retailers face such a challenging environment that even household names like Woolworths, MFI and Barratt have called in administrators, they yesterday gave their gloomiest forecast on record in the Confederation of British Industry's monthly retail survey.

The CBI's retail sales hit a record low of -55 set in December. Still, January sales were less awful than some had predicted as the balance rose to -47 – a bigger improvement than forecast by retailers themselves last month.

However, this could be but a glimmer, as retailers' outlook for February at -52 was the gloomiest since the CBI survey began in 1983.

"Most of the retail sector continues to struggle as the recession bites more deeply, and February will be tough," said Ian McCafferty, chief economic adviser to the CBI. "It is possible pre-Christmas discounting by some retailers numbed many shoppers to the allure of the new year sales."

Consumer spending – often funded in the past by debt which banks are now reluctant to grant – has been a key driver of Britain's economy for the past decade and many analysts are worried that a sharp retrenchment now could trigger an even sharper downward spiral of recession than the UK is already in.

Analysts said the sector is under pressure, and with the surge in unemployment the UK has seen recently, spending is likely to fall further as households hold on to their cash and pay down debt.

The weak underlying trend was highlighted by a fall in the three-month moving average sales balance, which hit a record low of -49 in January, from December's -43.

Andy Clarke, retail director of Wal-Mart's British supermarket chain Asda, told a briefing hosted by the CBI that the catch-phrase "frugal is the new cool" had become a watchword for shoppers.

"The chatter at the till-point is about job security," he said, noting that shoppers were trading down from more expensive ranges such as organic products to cheaper alternatives.

The mood is reflected at many smaller stores as well, where sales assistants mentioned huge falls in customer numbers despite huge discounting, often by as much as 70 per cent in an attempt to curb the effects of the recession.

Nonetheless, small luxury stores have remained partly insulated from the downturn, a reason sometimes cited for the split between the CBI and British Retail Consortium surveys and rosier official data from the Office for National Statistics.

The ONS data, which also has greater coverage of online shopping, last week reported retail sales for the three months to December were 2.4 per cent higher than a year earlier, in stark contrast to the declines reported in other surveys.

Nonetheless, analysts said the official data looked suspiciously strong compared to past downturns, and expected them increasingly to reflect the gloomier industry reports.

The CBI's Mr McCafferty added: "Later this year, we hope to see some benefit from recent interest rate cuts, falling inflation and the Government's steps to kick-start lending. But retailers will still have to work hard to coax anxious consumers back into the shops."

The CBI survey was conducted between 5 and 16 January, with answers from 165 retailers.