Retail sales slow as rising inflation hits real earnings

The Confederation of British Industry (CBI) Distributive Trades Survey of 117 firms found 29% reported an increase in sales volumes on a year ago, while 27% said they were down, giving a balance of positive 2%.

The figure is a significant slowdown from last month’s balance of positive 38%, the highest since September 2015’s 49% on the back of warm weather and the late Easter.

At the same time, retailers’ average selling prices rose at their fastest pace since May 2011, up 62%, with prices set to rise at a broadly similar pace next month, the CBI said.

The clothing sector saw a sharp slowdown and grocers’ sales were flat after two months of growth.

Retailers expect their overall business situation to deteriorate over the next three months, the survey found.

The CBI said the “tepid trading conditions” were taking their toll on hiring and investment, with the survey showing that employment within the sector declined in the year to May for the second quarter in a row and is set to fall again in the year to June.

CBI principal economist Alpesh Paleja said: “Retail sales flattened out this month, as the bounce in April unwound.

“It’s clear that households are increasingly feeling the pinch, as rising inflation pushes down on real earnings.

“Taken together with higher import cost pressures from a weaker pound, this is creating a challenging environment for retailers.”