May 24, 2011 / 11:34 AM / 8 years ago

Retail sales slow in May but top forecasts - CBI

LONDON (Reuters) - Retail sales grew more slowly in May, although they beat expectations, and firms are cautious about the outlook for growth next month, a survey by the Confederation of British Industry showed on Tuesday.

Shoppers browse clothes in a store in central London February 15, 2011. REUTERS/Paul Hackett

The figures came as Bank of England policymaker Paul Fisher said he was “nervous” about the strength of household demand against a backdrop of falling real wage growth, and said it was too early to contemplate raising interest rates.

The CBI Distributive Trades survey’s reported sales balance fell to +18 in May from +21 in April. That was above analysts’ expectations for a reading of +10, but below its long-run average.

And retailers reckon sales growth will continue to slow next month, with the expected sales balance for June at +14.

“Although the CBI survey indicates that retail sales held up better than feared in May, the underlying trend still indicates that consumers have become significantly less willing, and able, to spend in recent months in the face of serious pressures,” said Howard Archer, economist at IHS Global Insight.

Bank policymakers are divided over how to tackle soaring inflation without derailing Britain’s fragile economic recovery. Most of the nine-member Monetary Policy Committee reckon it is too early to start tightening policy, although three are in favour of immediate hikes.

“I believe there remains time to allow the economy to recover before the eventual tightening begins,” Fisher, who has consistently voted to leave rates at their record low 0.5 percent, said in a speech.

RETAIL GLOOM

Retailers have long been fretting about the outlook for the market, where consumers have come under pressure from rising inflation, weak wage growth and worries about job losses as the government embarks on the deepest spending cuts in generations.

British High Street chain Marks & Spencer said on Tuesday it had made a good start to the year, but expected trading conditions to be challenging in the year ahead.

The CBI survey came after official data last week showed shoppers splashed out in April, although sales may have been boosted by an extra public holiday for the Royal wedding and unusually warm weather.

Judith McKenna, chair of the CBI Distributive Trades survey panel and chief financial officer of supermarket chain Asda, said sales were likely to be more muted for the rest of this month after April’s bounce.

“There is evidence coming into May that things have tightened because people have spent more than they perhaps intended to over that period and are cutting back,” she told a news briefing.

“People don’t have a lot of confidence about what’s coming round the corner,” she said.

The CBI said sales were weaker across most sectors, with sales of household goods and furniture and carpets particularly poor, possibly reflecting the poor state of the housing market.

Quarterly figures published at the same time, showed retailers’ business situation had improved modestly since February but remained weak, with a balance of -2.

Writing by Fiona Shaikh; Editing by Susan Fenton

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