High street optimism drops to two-year low

A balance of 11 per cent of retailers said they felt more negative about the business situation over the next three months, its worst reading since February 2009, according to business body, the CBI.

And the balance of retailers reporting declining sales in August was at its worst level since May 2010, with clothing, household goods and DIY products bearing the brunt.

The CBI said the gloomy figures were caused by the squeeze in consumer spending but economists said the outbreak of rioting and looting also kept shoppers away from the high street.

The survey was carried out in the two weeks to August 16, the period around the riots, which began on Saturday, August 6.

Samuel Tombs, of Capital Economics, said: “It looks as if the recent falls in equity prices and the riots which both occurred at the start of the month may have taken their toll on consumer confidence and spending.

“Whichever way you look at it, then, it’s clear that fiscal austerity, rising inflation and increasing unemployment are combining to put an end to any recovery on the high street.”

The survey also revealed the balance of retailers scaling back their investment plans over the next year hit its highest level since February 2009.

Meanwhile, inflationary pressures eased slightly, with a balance of 55 per cent of retailers saying they had increased selling prices, its lowest reading since November 2010.

Consumers have reined in spending in recent months as wages fail to keep up with rising prices, creating a bloodbath on the high street.

Judith McKenna, chairwoman of the CBI distributive trades panel and Asda’s chief operating officer, said: “As expected, August was a tough month on the high street.

“Sales volumes fell at a pace not seen in over a year, as consumers have continued to see their real incomes squeezed by a combination of inflation and weak wage growth.”

She added that the survey suggests that prices will rise more slowly in the coming months as retailers keep prices low to fight for trade.

But she said that rising energy and commodity costs meant “families’ spending power looks like being constrained for some time”.