According to a survey by the Confederation of British Industry (CBI) retailers will put up their prices and cut jobs as the sector has seen the sharpest fall in sentiment in five years.
In the year to May to the CBI has suggested that employment across retailers has fall and next month it is expected the headcount will plummet.
During the Chancellor’s Autumn Budget in 2024 Rachel Reeves increased employer’s national insurance contributions and the minimum wage, making it more expensive to keep headcounts from April this year.
The CBI has warned the net balance of firms expecting their business situation to deteriorate over the coming quarter, according to the CBI’s latest quarterly Distributive Trades Survey.
Against a backdrop of subdued demand, retailers plan to reduce investment and headcount.
Retailers are expecting to significantly scale back capital expenditure in the next 12 months compared to the last 12. This cautious outlook shows only modest improvement on February’s reading, which marked its weakest point since the onset of COVID-19 in 2020. Total employment fell in May compared to a year ago, with the pace of decline expected to accelerate in June.
Retailers have seen year-on-year retail sales fall in May (weighted balance of -27% from -8% in April). Sales are expected to decline at a faster rate next month (-37%).
Retail sales for the time of year were judged to be “poor” in May, but to a lesser extent than in April (19% from -31% in April). June sales are set to remain below seasonal norms (-21%).
Sentiment amongst retailers plummeted in May at the sharpest rate in five years, with a net balance of firms expecting their business situation to worsen over the coming quarter (-29% from -19% in February).
Retailers expect to scale back investment plans in the next 12 months (compared to the previous 12) to a significant extent (-47% from -56% in February).
Employment in retail declined at a broadly steady rate in the year to May, compared to the previous quarter (-15% from -13% in February). Headcount is expected to fall at a quicker pace next month (-20%).
Retail selling price inflation picked up in the year to May but remained below the long-run average for the fifth consecutive quarterly survey (+35% from +25% in February; long-run average +41%). Retailers anticipate selling prices to increase at an accelerated rate next month (+57%).
Total distribution sales volumes (including retail, wholesale, and motor trades) declined in the year to May at the joint-fastest rate since January 2021 (-43% from -26% in April). Businesses anticipate another strong decline in sales for June, albeit at a slower pace (-38%).
Ben Jones, Lead Economist, CBI, said, “This was a fairly downbeat survey and highlights some of the challenges facing the retail and wider distribution sector. In contrast to other recent retail data, this survey suggests parts of the sector are still struggling with fragile consumer demand, though online sales seem to be holding up better.
“Firms are also feeling the impact of higher NICs and the National Living Wage increase. Our quarterly survey suggests that retailers are cutting back on hiring, scaling back investment and expect to increase selling prices at the fastest pace for over a year.
“With the Spending Review on the horizon, the government has an opportunity to kickstart growth and incentivise investment, whether by reforming business rates, simplifying skills investment through the Apprenticeship Levy reform or expanding the Made Smarter Programme, further enabling digital adoption.”
