Retail activity collapses to 25-year low as consumers retrench

Woolworths' results were not the only gloomy news for the high street yesterday as figures revealed that retail activity had slumped to a 25-year low, with rising energy prices and the deteriorating outlook driving consumers to tighten their belts.

The Confederation of British Industry saw no relief for retailers in July from its distributive trades survey released yesterday, which said sales volumes "fell particularly sharply, while the outlook for August remains bleak".

July's survey, described by one economist as a "real shocker", is the latest piece of miserable news for the UK economy, and prompted experts to reach once more for the dreaded "r" word.

Nick Kounis, the chief European economist for Fortis, said the rising food and energy prices, a weakening labour market and plummeting house prices "suggest that a deep consumer downturn is on the cards. Indeed, we expect to see outright falls in consumer spending in the coming quarters which should leave the economy flirting with recession."

The CBI found that the balance of retailers reporting an increase rather than a decrease in sales had plunged to a negative 36 per cent year on year, the weakest since the survey began in 1983, "and confounded expectations of a gentler decline of -7 per cent", it added. This was down from -9 per cent in June.

Andy Clarke, chairman of the CBI Distributive Trades Panel, and retail director of the supermarket chain Asda, said: "It is turning out to be a very grim summer for many retailers. Pressure from higher fuel and food prices is prompting many people to rein in their spending."

The demand for so-called big-ticket items, such as sofas and carpets, has fallen, with every retailer in the sector reporting lower sales than a year ago. Clothing retailers also endured another poor month, the survey found.

Mr Clarke said: "The faltering housing market has depressed sales of home furnishings and white goods this month and the high street is still struggling, but supermarkets are faring better."

Howard Archer, the chief UK and European economist for Global Insight, said the survey follows on from a sharp correction in retail sales last month, and weaker trading from bellwether retailers such as John Lewis and Marks & Spencer. He said: "It seems highly likely that consumers are retrenching both out of necessity and out of choice amid increased concerns over the economic outlook."

The distributive trades survey covers 20,000 outlets at firms responsible for 40 per cent of retail employment in the UK.