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News : UK Economy Last Updated: Feb 27, 2013 - 8:06 AM

UK retail sales slow; Business fell in service sector in last three months
By Finfacts Team
Feb 26, 2013 - 3:55 PM

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Chelmsford's High Street.

UK retailers saw sales volumes continue to strengthen on a year ago in the first half of February, although the pace of growth slowed once again, the CBI said today. Meanwhile, business fell across the service sector over the last three months. The Confederation of British Industry is the UK's biggest business lobbying organisation.

The CBI’s latest quarterly Distributive Trades Survey, which covers the first two weeks of February, revealed that 37% of retailers saw an increase in their volume of sales in the year to February and 29% reported a reduction. The resulting balance of +8% was the lowest figure since September 2012 (+6%) and was the third consecutive month in which the pace of growth had slowed.

The volume of orders fell sharply (-19%) against expectations they would remain flat (0%), perhaps in part reflecting the loss of momentum in volumes of sales (expectations had been +13%).

Fortunes were broadly positive among retail sub-sectors, with grocers being one of the few fallers in this survey, with their first decrease in volumes of sales (-26%) since April 2012 (-19%) and the lowest figure since November 2008 (-46%). Many other sub-sectors enjoyed a more positive return, with clothing (+91%) reporting its highest figure since October 2010 (+95%), and other strong sectors including furniture and carpets (+61%) and non-store goods (+70%) - which includes online and mail-order.

Barry Williams, Asda chief merchandising officer for food, and chair of the CBI Distributive Trades Survey Panel said: “We all know trading is tough, and the bad weather hasn’t exactly been encouraging shoppers to hit the high street lately. But there is a glimmer of hope for retailers with the news that sales are growing, even if at a slower pace than in recent months.

“Clearly, the road to recovery remains fragile. Worries about the economy, pay freezes and the rising cost of living will mean shoppers remain cautious for the foreseeable future.”

Price inflation in shops rose more sharply than expected this quarter (+40%, compared with +24%), but was in line with its long-run average (+40%).

Looking ahead, retailers expect both the volume of sales (+9%) and volume of orders placed upon suppliers (-19%) to see little change in March from this month’s results (+8%, -19% respectively). Sentiment about the general business situation over the next three months remains positive and even saw a modest improvement on the previous quarter (+12% compared with +7%). Investment intentions for the year ahead remain relatively unchanged (-7%, compared with -12%), while employment saw a small fall (-7%) against more positive expectations (+9%).

For wholesalers, volumes of sales (+8%) were better than expected (-1%), while volumes of orders remained flat (-2%). The outlook for the business situation for wholesalers improved for the second consecutive quarter (+25%), while investment intentions flattened out (-3%) compared with the previous three months (-15%).

In motor trades, sales returned to growth (+10%) with the expectation of an even greater acceleration in the volume of sales next month (+50%), which, if realised, would be the strongest growth since November 2012 (+50%). Motor traders are feeling more optimistic about the business situation (+9%) compared with the previous quarter (-3%), reflected in their improved investment intentions (+4%, compared with -24% in the previous quarter).

The survey was conducted between 24th January and 13th February 2013. 133 firms took part, of which 70 were retailers, 55 were wholesalers and 8 motor traders.

Business fell across the service sector over the last three months - worse than expected, according to the CBI’s latest quarterly survey.

The business & professional service sector, which includes accountancy, legal and marketing firms, fell far short of predictions of strong volumes growth. The sector reported its biggest fall in profitability since November 2011, as businesses cut their prices and employment costs rose.

And business in consumer services, such as hotels, bars, restaurants and the travel and leisure industries, fell much more steeply than expected, with a drop in profitability as rising prices were outpaced by growth in employee costs.

But the survey of 147 firms reports a slightly brighter picture for the next three months, with volumes in both sectors expected to rise and employment increasing more markedly.

Profits in business & professional services are expected to remain under pressure, as prices continue to fall and costs rise. But consumer services firms are expected to see profitability increase, as prices are expected to rise strongly.

The survey also shows the proportion of consumer services firms expecting to expand over the next 12 months at its highest level for three years, with more firms saying they will invest in replacing old equipment, reaching new customers and providing new services.

Anna Leach, CBI head of economic analysis, said: “Economic conditions remain fragile in the service sector.

“Business conditions failed to improve as expected for business & professional firms, while sharply falling prices bore down on profits. Consumer services saw a tougher end to the year than expected, as the rate of decline in business volumes accelerated unexpectedly.

The Service Sector Survey was conducted between 22nd January and 13th February – with 95 business & professional firms and 52 consumer services firms responding.

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