UK high street sales improved in May after a sharp fall in April but retailers, faced by tough conditions on the high street, ramped up their prices at the steepest rate since 1992, the Confederation of British Industry said yesterday.
The CBI's Distributive Trades Survey revealed that although retailer confidence and the outlook for jobs have worsened slightly this month, high-street sales are expected to improve in June.
Year-on-year 28% of retailers said sales volumes had increased, while 42% said they had fallen with a resulting balance of -14% less severe than the net -26% reported last month. Sales are expected to recover slightly in June, by a balance of +6%.
However, prices are rising to protect margins. A balance of 56% of firms said that average selling prices had increased, which is the strongest since May 1992 (+57%).
A similar rate of price rises is expected next month, the CBI said. Shops are facing higher raw material costs as the value of sterling falls.
Grocers, including major supermarkets, had a strong month, with a balance of +51% reporting year-on-year growth. Clothing sales stabilised following a poor April, and footwear and leather retailers had another successful month.
"The high street is facing another testing month as consumer spending power has been hit by the rising cost of fuel and food as well as any credit crunch worries," said Ian McCafferty, economic adviser to the CBI.
"It is encouraging that retailers can see some recovery in sales next month but they are not optimistic about the business outlook and retail conditions are likely to remain tough."
Vicky Redwood, UK economist at Capital Econ omics, said the survey paints "a much weaker picture of high-street spending than the official sales data".
She added: "Although the reported sales balance rose from -26 to -14 in May, it had previously been looking particularly weak, probably due to the wet weather and earlier timing of Easter. Even now, it points to annual growth of the official sales measure of just 1% to 2%, compared to April's rate of 4.2%."
Howard Archer, chief UK and European economist at Global Insight, said evidence that retailers are raising prices of goods in their shops reinforces the belief in the City that the Bank of England will not be cutting base rates when its Monetary Pol icy Committee next week.
He said: "Indeed, the Bank of England is unlikely to trim interest rates again until August at the very earliest despite markedly weakening economic activity, a moribund housing market and a deteriorating outlook."
A Reuters poll released yesterday showed that many economists believe the Bank of England is not likely to change rates from 5% next week and they expect only one further cut this year despite a flagging economy struggling with soaring inflation.
The poll of 71 economists, taken May 27-29, found only two of them predicted the MPC would cut rates at its June meeting but 40 of them predicted a cut by September as the central bank tries to breathe life into a slowing economy.
Meanwhile, the GfK NOP barometer of UK confidence had more bad news for the high street.
It said fears of a looming recession sent consumer confidence diving to its lowest level for nearly 18 years this month.
It scored -29 in May, down five points from April and the lowest reading since November 1990 - the start of the last UK recession.
GfK's Rachael Joy said: "We are at a massive 27 points lower than this time last year.
"Consumers' confidence in the economy over the next year, plus a reluctance to make major purchases, reflect the popular expectation of a recession - both these measures are at the lowest level on record."
It is the ninth consecutive month that the survey's confidence measure has fallen, with consumers jolted by soaring petrol prices, household bills and falling house prices.
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