British retailers gave their gloomiest forecast on record today in the Confederation of British Industry's monthly survey, although January sales were less dismal than expected.
The CBI's retail sales balance rose to -47 in January from a record low of -55 set in December, a bigger improvement than forecast by retailers themselves last month.
But retailers' outlook for the month to come was the gloomiest since the CBI survey began in 1983 at -52.
"Most of the retail sector continues to struggle as the recession bites more deeply, and February will be tough," said Ian McCafferty, chief economic advisor to the CBI.
"It is possible that pre-Christmas discounting by some retailers numbed many shoppers to the allure of the New Year sales."
Consumer spending has been a key driver of Britain's economy for the past decade and many analysts are worried that a sharp retrenchment now could trigger an even sharper downward spiral for growth.
The weak underlying trend was highlighted by a fall in the three-month moving average sales balance, which hit a record low of -49 in January, falling from December's -43.
"The sector is under enormous pressure," said Matthew Sharratt, an economist at Bank of America. "We've started to see a very sharp surge in unemployment, so if anything, spending is going to fall further as households reduce borrowing."
Reuters
Andy Clarke, retail director of Wal-Mart's British supermarket chain Asda, told a briefing hosted by the CBI that the catch-phrase "frugal is the new cool" had become a watchword for shoppers.
"The chatter at the till-point is about job security," he said, noting that shoppers were trading down from more expensive ranges such as organic products to cheaper alternatives.
The mood was reflected at many smaller stores as well.
"The time since Christmas was horrible," said Burak Atil, a sales assistant at Romano Italian Menswear in central London.
"There is about a 50 per cent drop in sales compared to last year. We offer sales discounts of up to 70 per cent, but even that doesn't help," he said.
Nonetheless, small luxury stores have remained partly insulated from the downturn, a reason sometimes cited for the split between CBI and British Retail Consortium surveys and rosier official data from the Office for National Statistics.
One firm still doing well is El Vino wine merchants, near London's main criminal court.
"Our customers are barristers and judges and they are still spending silly money on expensive Bordeaux wines," said shop assistant Dave Spackman. "I don't think the credit crunch affects them as much. They still get paid."