Retail sales fell back in January, the Confederation of British Industries (CBI) said, as the malaise on Britain's high streets continued.
There is typically a post-Christmas slump in retail, but this year it was even deeper than usual, the CBI said - with the sector seeing the biggest aggregate fall in sales volumes since March 2009, when the economy was in recession.
Respondents to the CBI survey said that their sales were disappointing, with orders also down. Retailers expect volumes to fall again in February.
“Shoppers have reined-in spending across the board at the start of the New Year after taking advantage of early discounting last month, which boosted pre-Christmas sales," Ian McCafferty, the CBI's chief economic adviser, said in a statement accompanying the report's release.
“Family budgets are under continuing pressure with inflation still high and wage increases modest."
With the economy having contracted in the fourth quarter of 2011 - on Wednesday the Office of National Statistics (ONS) reported a fall in gross domestic product (GDP) of 0.2% over the period - and with a brutal winter for retailers, it was unlikely that the sector was going to pull off a miraculous turnaround in January.
Inflation is moderating, but was high during 2011. Coupled with wage stagnation, this led to a fall in real household incomes, and shoppers held back from making large discretionary purchases. Several high street fixtures, including Barratts Shoes, La Senza and Blacks went into administration, and others, including Peacocks, are at risk.
The retail sector is a major contributor to the UK's economic output, and any further weakening could push the country towards recession.
Howard Archer, chief UK and European economist at IHS Global Insight, said that the CBI data was "hugely disappointing" and that it "shows substantial deterioration in retail sales, thereby fuelling fears that pressurised and worried consumers are hunkering down after a spending flurry in the run-up to Christmas."
Other analysts were slightly more upbeat.
“January was always going to be a slow month and coupled with this week’s GDP figures there is little to boost the current mood on the high street," Richard Lowe, head of retail and wholesale at Barclays Corporate said in an email.
"However, retailers have been here before, back in 2008/2009, when the UK economy previously shrank. The difference this time is that retailers are running with tighter stock levels, many have sorted out their capital structures and everyone is working hard to preserve margins”.
Separately, on Thursday, the British Retail Consortium (BRC) released its employment figures for the fourth quarter of 2011, showing that there was marginal growth in jobs in the sector. Retail employment rose by 0.5% across the three months, driven by hiring at food retailers.
Total job figures, released last week, show that unemployment in the UK is at a 15-year high.
The retail sector has seen a few high profile staffing announcements, such as Thursday's announcement that the sandwich chain Subway is to open 600 outlets and hire 6,000 new workers over the next three years. Last week, Asda said that it would be hiring 5,000 new staff as part of an expansion drive.
However, with companies entering administration, and with the high street gloom dampening the prospects for wholesale acquisitions of those struggling businesses, it is likely that there will be more job losses to come.
As Jon Copestake, retail industry analyst at the Economist Intelligence Unit, said: "The job losses already announced from Bon Marche as well as those still under threat at Peacock are, in themselves, sufficient to undermine the gains of last quarter and Asda’s investment. The fact that the quarterly figures may have been boosted by short-term Christmas posts compounds this and it is likely that more retail jobs will be lost than created as 2012 unfolds.”
BRC director general Stephen Robertson said in a statement accompanying the report release that there was "little to celebrate" in the figures, which came at a point when the labour market was so fragile.
“Following reductions in non-food staff numbers during 2011, we’re now seeing stores close. Retailers are focused on reducing costs and reviewing property portfolios, which means employment prospects are weakening. After a raft of retail failures in the first few weeks of 2012 there is a danger more stores will be pushed over the edge."
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