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High street stores are hoping for a big cut in interest rates next week after figures showed that retail sales plunged this month with further falls forecast for the run-up to Christmas.
A survey released yesterday by the CBI showed that 62% of firms reported lower sales in the first half of November compared with a year ago. Another strong fall in year-on-year sales volumes is expected next month.
The CBI's distributive trades or retail survey balance slid to -46 this month, from -27 in October. The more negative the figure, the worse the picture. Analysts had predicted a deterioration to -35. The figure matched the reading in August, the lowest since records began in 1983.
Several retailers have released dire sales figures in the last week, with Woolworths and MFI entering administration and DSG, which owns Dixons and PC World, reporting its biggest ever loss. Sales at John Lewis were down 13%.
Andy Clarke, chairman of the CBI's distributive trades panel and retail director of Asda, said: "Christmas is going to be extremely tough this year, with retailers having to work harder than ever to keep the tills ringing.
"The added pressure of changing millions of prices, to reflect the cut in VAT, will be an unwelcome and costly burden." He added that items such as consumer durables, furniture, carpets and DIY goods were being hit the hardest. "With a thawing of the housing market remote, this is unlikely to change," he said.
Most sectors linked with the housing market suffered a decline in sales and only footwear and leather goods showed any sales growth. There was also a big decline in sales volumes in the grocery sector, bringing two years of continuous growth to an abrupt end. Retailers' confidence in their sector remained especially weak, and 37% expect the retail business situation to deteriorate over the next three months.
The CBI figures will put more pressure on the Bank of England's monetary policy committee to cut interest rates when it meets next week. It slashed 1.5 percentage points off rates earlier this month to leave them at 3%. Economists have predicted that the MPC would now cut rates by at least another half point.
David Kern, chief economist at the British Chambers of Commerce (BCC), said: "Following the disappointing reaction to the PBR [pre-budget report] it is critical for the MPC to persevere with aggressive interest rate cuts. To alleviate the worse consequences of the recession, we urge the MPC to cut rates by a full 1% on Thursday, to 2%.
Howard Archer at IHS Global Insight said: "The CBI survey and latest John Lewis sales data maintain belief that the consumer is in intensive care and is unlikely to be significantly revived by the VAT cut from 17.5% to 15%.
"The problems facing consumers run deep, and they can only be partly countered by the VAT reduction, sharp cutting of interest rates by the Bank of England and the increasingly desperate discounting and sales promotions being seen on the high street."
Fads, the home decorating chain, became the latest victim of the credit crunch yesterday when it reported that like-for-like sales were down 6% in the six months to the end of August. Its owner, Strategic Retail, said trading conditions had "deteriorated significantly" in the UK as it posted a wider first-half loss. It said that it was currently reviewing all options and has cancelled plans to open new stores. For the half-year ending August 30, the company's pretax loss widened to £855,000, from a loss of £26,000 a year earlier, as revenue fell to £8.93m from £9.89m.
Analysts expect high street retailers to start discounting heavily over the Christmas period in an attempt to attract customers. John Lewis slashed 25% off hundreds of branded goods in a two-day sale ending yesterday.
The chain of department stores said that sales in its department stores slumped 13.3% year on year in the week to November 22. There was also a two-day "brand event" sale at House of Fraser. Debenhams, M&S and Bhs have also held big sales over the last fortnight.
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