The reduced spending power of UK households was highlighted today after a survey showed sales slowed in January despite widespread discounting.
The balance of retailers who said they sold more goods than a year ago declined to 37% in January from 56% in December as the switch in VAT from 17.5% to 20% earlier this month hit sales, according to the CBI's distributive trades retail survey.
The survey dampened hopes that January would see the retail sector bounce back from its worst performance on record in December when snow caused widespread disruption on the high street.
Retailers expect growth to slow further in February, with the balance expecting an increase in sales falling to 25%, as the CBI warned that tough times lie ahead as wages fall further behind price rises.
CBI chief economic adviser Ian McCafferty said: "The lure of seasonal sales and price discounting may have helped mitigate some of the impact of the VAT increase on volumes.
"However, retailers expect the pace of sales growth to slow further next month, and orders placed with suppliers have flattened out.
"Consumer demand is expected to be weak in the coming months, as the spending power of households is hit by a combination of sharply rising prices and weak wage growth. Retailers can expect a challenging period ahead."
The ONS recently reported that December's sales volumes fell 0.8%, as consumers were deterred from visiting the shops by the Arctic weather.
The CBI survey is considerably more optimistic than the official data but still suggests a dramatic slow-down in January.
Sales of grocery items, clothing, footwear and leather saw the strongest growth in January, while the weakest sector was durable household goods which saw sales fall "particularly sharply".
Howard Archer, chief economist at IHS Global Insight, said: "The survey does little for hopes that retail sales bounced back strongly from December's weather-related hit.
"While a balance of 37% in January still looks pretty elevated, it needs to be borne in mind that the CBI survey has consistently been markedly more upbeat than the hard retail sales data in recent months.
"The CBI survey and marked fall in consumer confidence in January reinforces suspicion that consumer spending will be limited in 2011."Reuse content