Retailers suffer from a Christmas hangover

Survey shows worst month for three years on the high street in a dire start to 2012

A painful, post-Christmas hangover hit the high street this month, as shoppers closed their wallets after a festive splurge, the CBI warned today.

Its latest distributive trades survey revealed the worst month for retailers in nearly three years during a dire start to 2012 when several names – including La Senza, Barratts and Peacocks – were forced into administration.

The retail gloom comes a day after official estimates showed a worse-than-feared 0.2 per cent slide for the spluttering UK economy in the last three months of 2011.

The consumer caution at the start of the current quarter will also be a huge concern for Chancellor George Osborne, who is staring down the barrel of a double-dip recession and facing renewed questions over his strategy to cut Britain's deficit.

The CBI's survey – covering the first two weeks of January – showed retailers in their most downbeat mood since March 2009 as a 22 per cent balance of respondents reported lower sales than a year ago.

Ian McCafferty, the CBI's chief economic adviser, said: "Shoppers have reined in spending across the board at the start of the new year after taking advantage of early discounting last month, which boosted pre-Christmas sales. Family budgets are under continuing pressure with inflation still high and wage increases modest.

"Consumers are still holding off particularly from buying big-ticket items like washing machines and fridges. Online and mail-order sales were the only areas that performed well in January, but growth was still down on last month," he added.

Official figures showed a 0.6 per cent rise in sales volumes during December, but retailers were heavily reliant on price-slashing to draw in shoppers.

Retailers will hope that the squeeze on household wallets will ease gradually this year as inflation falls back towards the Bank of England's 2 per cent target, helped by recent price cuts from the UK's "big six" energy suppliers.

Interest rates are also unlikely to budge from their 0.5 per cent record low for the next 18 months at least, staving off higher mortgage payments for millions of borrowers on variable rate deals.

But rising unemployment is unlikely to herald any significant boost for wages in 2012, while the independent Office for Budget Responsibility predicts anaemic 0.2 per cent growth in household spending – accounting for around 60 per cent of the overall economy – this year.

Deutsche Bank's chief UK economist George Buckley described the CBI survey as "disappointing".

"Lower inflation going forward and a resumption of the recovery in the second half should support sales, but in the meantime squeezed real incomes will make life difficult for retailers," he said.

Peacocks in play

Several private equity firms have exited the race to acquire Peacocks, the collapsed clothing retailer. Cinven, Permira and Sun European Partners, which acquired its stablemate, clothing chain Bonmarche, this week, are among those to drop out. But private equity firms such as KKR and the retail restructuring firm GA Europe are mulling bids for Peacocks ahead of Monday's deadline. The restructuring firm Hilco is providing advice on the operational side to KPMG, which is handling the sale of the discount fashion chain. All parties declined to comment.

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