Slight increase in retail sales

Retail sales have picked up unexpectedly in March, but the rate of growth remained subdued amid grim conditions on the high street, figures showed today.

A balance of 15% of retailers saw sales increase year-on-year in March, compared with 6% the previous month when the reading hit an eight-month low, the latest distributive trades survey from the CBI showed.

The result was better than feared, although it was still the second-lowest reading since last June.

And a balance of 24% said trade was poor for the time of year - its lowest reading since August 2009 - while a majority thought sales would continue to underperform in April.

CBI chief economic adviser Ian McCafferty said: "Sales growth picked up slightly for retailers compared with last month, but look beneath the surface and conditions remain tough on the high street.

"Even the best performing sectors - namely, grocers and clothing - have seen volumes continue to fall.

"With inflation edging higher and earnings growth only modest, household budgets are under increasing pressure."

Retailers have had a torrid time in recent months after consumer confidence plummeted amid Government austerity cuts, including January's rise in VAT to 20% from 17.5%.

Official data released yesterday revealed that household disposable incomes dropped for the first time in 30 years at the end of 2010 as wages failed to keep pace with soaring inflation.

A raft of retailers have reported disappointing results in recent weeks, including Currys and PC World-owner Dixons Retail, which issued its second profits warning in as many months today after worsening trading conditions saw sales tumble 11%.

The Co-operative Group also revealed today that like-for-like sales at its food stores declined by 2.5% in the past year as a result of "extremely fierce" competition.

And the UK's largest sofa retailer DFS Furniture said its sales growth slowed during its second quarter even though this took in its post-Christmas sales period, which is normally its busiest trading period.

The CBI survey confirmed the tough conditions on the high street, with the balance of retailers that believe sales over the past three months have been higher than normal at its lowest for eight months.

A balance of 88% of homeware and electronics retailers said sales were down on a year ago, while DIY and hardware stores were also feeling the squeeze.

The rate of sales growth at grocers slowed to its slowest for two years, the CBI said.

Howard Archer, chief economist at IHS Global Insight, said: "The survey does little to dilute belief that consumers are reining in their spending appreciably as their purchasing power is squeezed by high and rising inflation, in tandem with ongoing muted wage growth overall.

"Given that consumer spending accounts for some 65% of gross domestic product, this is worrying for growth prospects."