Belfast Telegraph

Thursday 21 August 2014

VAT hike threatens retail sales growth, warns CBI

High street retail sales growth sped up in November but hopes are fading that the momentum continues into the new year when VAT rises, the CBI has warned.

The business lobby group's distributive trades survey showed a balance of 43% of retailers reported a rise in sales in November against a year earlier, with grocers and clothing retailers the main winners.

This was a significant improvement on October's balance of 36%.

But the balance that expects the sales boost to continue for the next three months halved from 22% in October to 11% in November.

Hopes for the important pre-Christmas trading period have strengthened slightly since October, however.

Ian McCafferty, CBI chief economic advisor, said that high street sales growth held up well in November and retailers are hopeful that the run-up to Christmas will be just as strong - but there is worse news to come.

"Looking into the New Year, retail sales growth may lose some of its sparkle as consumers rein in spending after Christmas," he said.

Samuel Tombs, an economist at Capital Economics, doubted activity was as strong as the survey suggested because other economic data, such as that produced by the Office for National Statistics, had been much less encouraging.

"Any boost to sales from consumers trying to beat the VAT rise will only be temporary," he cautioned.

"The concern remains that consumers will rein in their spending in the face of serious headwinds.

"Consumer confidence is currently low while the substantial fiscal squeeze will increasingly hit public sector jobs and consumers' pockets."

The CBI's monthly surveys show the net number of retailers to have reported a year-on-year sales increase hit a six-month high of 49% in September.

Price inflation remained high, according to the survey, with 51% of retailers saying average prices rose year-on-year and just 6% reporting a fall.

The survey also revealed a sharp drop in motor sales in November, which came as a surprise because, on balance, dealers had expected them to grow during the month.

A balance of 48% said that sales declined year-on-year, in the worst result for the sector since July 2009.

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