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Surprise pick up in High Street sales after difficult January

The UK high street outperformed its expectations of a flat first half to February by posting the strongest growth in sales volumes in over two years, and further growth is predicted in March according to the CBI.

GENERAL MERCHANDISE

Surprise pick up in High Street sales after difficult January

The UK high street outperformed its expectations of a flat first half to February by posting the strongest growth in sales volumes in over two years, and further growth is predicted in March according to the CBI.

Its latest Distributive Trades Survey also revealed that although price inflation has accelerated sharply, the fall in employment has slowed, and investment intentions have stabilised for the first time in over two years.

Asked how their sales volumes in early February compared against the same period in 2009, 23% said they were lower, while 46% said they were up. The resulting balance of +23% is a clear improvement on January (-8%) and is the strongest year-on-year increase in sales since May 2007 (+31%). It also bettered retailers' expectations that there would be little change in sales volumes on a year ago (-1%).

A balance of 16% of retailers expect that, compared with last March, there will be further growth next month.

The volume of orders placed on suppliers also improved in line with sales volumes, with a balance of 12% saying they were up on a year ago. A similar rate of growth is expected next month.

A net 8% of firms said that sales were poor for the time of year, and the three month moving average of sales volumes, which smoothes out monthly peaks and troughs, grew for a fourth consecutive month (a balance of +9%).

Stock levels remained at a similar position to January, and a balance of 14% of firms said they were more than adequate to meet expected demand. However, stock adequacy has remained below its long-run average for the tenth consecutive month.

Among questions asked on a quarterly basis, retailers revealed that they expect the business situation to be broadly stable over the next three months.

The fall in employment eased for a second consecutive quarter - a balance of 16% of firms said they were cutting headcount, with a broadly similar fall expected in March (-13%).

Retailers expect to authorise roughly the same amount of capital expenditure over the next 12 months as they did in the past year. The neutral balance (-2%) marks the least negative investment intentions since August 2007 (-1%).

Retail prices grew strongly in February (a balance of 40%), most likely reflecting the increase in VAT at the start of this year. Prices are expected to rise at a similar pace next month (+43%).

Looking at individual retail sectors, clothing sales rose at their fastest pace since October 2006, while grocers also had a strong month. Retailers of durable household goods, and furniture & carpets posted robust growth after sales falls in January. However, sales in the hardware, china & DIY sector continued to fall.

Andy Clarke, Chairman of the CBI Distributive Trades Panel, and Chief Operating Officer of Asda, said:  "Sales have been stronger this month than many retailers predicted they would be, but that’s not surprising as January was impacted by VAT changes and forward buys in December.

“Retailers don’t think February’s growth spurt will be matched in March, but the sector can take some reassurance that job losses are easing off and capital expenditure plans are stabilising.

"While retailers see some growth ahead, the road to recovery through 2010 is likely to be fragile. Worries about the economy and upcoming pay freezes are likely to ensure that shoppers remain cautious."

After a difficult January, sales volumes in the wholesale sector rose modestly this month (a balance of +11%) and slightly weaker growth is expected in March (+6%). Wholesalers expect the business situation to be stable over the coming three months and investment intentions for the year ahead have stabilised.

Motor traders' sales volumes fell heavily in the year to February (a balance of -31%) for the second consecutive month, and a balance of 18% expects sales to fall once again in March. A net 46% of traders expects the business situation to worsen over the next three months, although stability in employment levels is expected to continue into March.

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