Sales Reflect Retailers Expectations

Retailers' year-on-year sales fell again in May according to the latest CBI Distributive Trades Survey results published today. There had been a brief pause in the decline in April but at least the monthly results reflect retailers' expectations for the month and confidence is the least negative for a year.

Employment conditions remained difficult in May and staff reductions continued to mount. Prices rose during the month and similar rates of price inflation are expected in the August quarterly DTS survey. A small majority of firms expect the general situation facing retailers to get still worse.

Wholesale and motor traders' sales fell faster in the year to May than in the year to April. Average selling prices in both sectors also increased. In the motors sector prices increased at the fastest rate since August 1990. Investment plans in the wholesale sector are lower than at any time since February 1991.

ONS And CBI See Fall In Business Services Output

Services output seasonally adjusted chained volume of gross value added index fell by 1.2% quarter-on-quarter to 113.3 and follows a fall of 1.3% on the previous three months according to Office for National Statistics latest Index of Services figures. The most significant fall in both quarter-on-quarter and in month-on-month figures was in business services and finance. Distribution fell 0.2% in the quarter to March compared to the quarter to December. It is the 9th consecutive monthly fall, driven mainly by wholesale, motor trades also decreased and retail increased. Hotels and restaurants fell by 5.1% over same period. There were also significant decreases in bars and restaurants. Transport, storage and communications fell by 2.3%. Business services and finance fell 2.2% to 121.7 in the quarter to March on the quarter to December and fell 0.4% between February and March. Government services increased by 0.7% in the quarter to March with the most significant increases in health and social work.

The Confederation of British Industry released its quarterly Services Sector Survey results today. It shows the service sector is still is deep recession. There are some signs of confidence returning. Consumer services fell at their fastest rate since November 2001. The rise in prices made the fall in business values look less marked. Business and professional services values fell faster than volumes due to record deflation in prices. Rates of decline are expected to slow down in both consumer services and business and professional services over the next three months. Employment is continuing to fall in both sectors. Profitability also fell but at a slower rate than the record falls of the previous quarter. Business and professional services show a similar pattern. A steep downward trend continues in telecomms and computing and transport of goods and post. Marketing services also show a continued downward trend in business values and volumes but much less marked. Confidence and profitability have both fallen. There are some signs that the decline is begining to slow.

Biggest Fall In Real GDP For Years

Real GDP fell by 1.9% in Q1 2009 compared with Q4 2008 suggests the latest survey from the Office for National Statistics. It is the biggest fall since Q3 1979. GDP is 4.1% lower than Q1 2008. Market sector GVA fell by 2.3% reflecting a decline in production, construction and non-governmental services. Volume of output in production fell by 5.3%, manufacturing by 5.5%, services by 1.2% and construction by 2.4%. Nominal GDP fell by 2.4% compared with Q1 2008. The GDP implied deflator rose by 1.8% over the same period. Household expenditure fell by 1.2%, gross fixed capital formation by 3.5%. GDP at curent market prices fell by 1.5%.

Increase In Retail Sales

The volume of seasonally adjusted retail sales was up by 2.6% in April on April 2008. Food stores were up 1.5, the largest increase for a year, while non-food stores which includes many different groupings, showed mixed results but increased 2.8% overall. The total retail sales volume in three months to April was 0.7% higher than last year. Average weekly value of internet retail sales from the March report were about £172 million, 3.4 percent of retail sales for March.

Current Budget Deficit Higher Than Last Year

The public sector finances fiscal indicators published by the Office for National Statistics and the Treasury tell us that the public sector current budget showed a deficit £7.0 bn, £6.3 bn higher than April 2008. Public sector net borrowing was £8.5 bn, £6.6 bn higher than last year and the public sector net cash requirement, the deficit plus the interest paid to those from whom the government borrows, was £5.2 bn, £8.0 bn higher than April 2008, when there was a repayment of £2.9 bn. The public sector net debt stood at £754bn or 53.2% of GDP compared to £618.7 bn or 42.9% of GDP last April. Public sector net debt, excluding financial sector interventions for Q1 2009 was £609 bn or 42.9% GDP.

The Institute for Fiscal Studies said that the Government borrowed about £3 billion less in 2008-9 than they thought in the Budget last month. This was due they said to current spending being lower and taxes higher than thought at the time of the Budget

Decreases In Distribution And Production Investment

Business investment statistics are estimated to show a decrease of 5.5% compared with the previous quarter and 6.8% with this time last year according to the Office for National Statistics. The decreases were estimated to have been in distributions services and production. Capital expenditure was also reduced in the real estate and renting, communications and hotels anf restaurants categories. The business investment figure for the first quarter of 2009 is estimated to have been £33,042 million. It was £34,952 in Q4 2008 and it has fallen from £35,771 in Q2 2008. Services account for £24,605 a fall for the 5th successive quarter from £27,149 in Q4 2007.

Manufacturing Expected To Continue Falling But More Slowly

The CBI industrial trends monthly survey suggests that some manufacturers expect the volume of output to increase in the next few months but even more expect it to fall. Overall the decline in output is expected to slow quite a lot over the next quarter. The survey results show an improvement on the last survey and the level is back to where it was last September before the collapse of leading US bank Lehman Brothers.

Demand for UK made goods is weak with order books still below normal. Exports were also low even though the pound is relatively weak at the moment. Prices are expected to fall. Stock levels remain more than adequate to meet demand even though firms have been letting them run down. The practice of running down stocks is expected to continue. Many managers seem to believe the worst of the recession is over.

CPI And RPI Up In April

The Consumer Prices Index rose for the 4th month in a row in April by 2.3% to 110.1 compared to 2.9% in March mainly due to food and non-alcoholic beverages. The Retail Prices Index (RPI) grew more slowly but gained for the 4th month in a row in April as the % increase over 12 months fell again this time by 1.2% to 211.5 from 211.3 in March with the largest contribution from mortgage interest payments. The RPI excluding mortgage interest payments also continued to rise but again the increase was less than previous months at 1.7%.

Large downward contributions to the CPI were made by housing and household services, due to electricity and gas bills, restaurants, hotels, recreation and culture and food and beverages, vegetables and meat. Smaller downward contributions came from fruit, bread and cereals. Small partial offsetting effects were noticeable from insurance costs, AV equipment, cultural services and cable TV subscriptions. Large upward contributions came from vehicles, fuels and lubricants and air transport.

The main downward contributions to the RPI were from mortgage interest payments, house depreciation, rent, council tax and house insurance. Other downward contributions came from electricity and gas bills, food, alcoholic drinks and tobacco. There was a small downward contribution from catering. The largest upward contribution came from motoring, where car prices and car sales were both up on last year, fuel, vehicle tax and insurance. Household services also made an large upward contribution as landline telephone charges went up by more than last year and there was a small contribution from household goods.

The difference between the CPI and the RPI was 3.44% the main factors were mortgage interest payments and other housing components.

Farmland Prices

According to recent RICS data on farmland prices during H1 2008 there was a 47% rise year-on-year, the fastest in the survey's history, compared with 28% year-on-year in H2 2007. In H2 2008 both arable and pasture land prices fell.

Reported sales increased by 50% in year to H1 2008. The revised figures for H2 2007 show a fall of 2%. In H2 2008 farmland sales increased 16% to 270. Individual farmers share of purchases increased from 50-60% between H2 2007 and H2 2008 and agricultural businesses share increased from 5-8%.

Strong demand below all the time high of H1 2007 in H1 2008. Residential demand fell for the first time since Q4 2005 during the same period. In H2 2008 demand for residential and non-residential land both fell and in the residential sector it was the fastest fall in the survey's history. The lifestyle buyers were once one of the main drivers of the residential sector. Commercial sector demand is still strong. UK banks have been willing to lend to the agricultural sector and it has risen by 8.2% year-on-year.

The increases in availability in both residential and commercial sectors from H1 2008 remained stable. Rising input costs have been making it more difficult for many of the smaller farming estates. Residential sector supply fell at the fastest rate since H2 2005.

Commercial sector farmland price expectations remain positive, above the long run averages. Residential farmland price expectations became negative for first time since Q4 2005 in H1 2008 and fell further to the lowest in the survey's history in H2 2008.

The average price for arable land in England and Wales was £13,182/ha in H2 2008 down a fall from £14,463/ha a 20% change over the year and for pasture £11,490, from £11,477/ha and an annual change of 16%. The range was £11,120 to £14,827 for arable and £12,356 to £7,660 for pasture. The average rent in England and Wales for arable land during H2 2008 was £155 (AHA 86) and £226 (ATA 95) and for pasture £114 (AHA 86) and £164 (AHA 95).

Modest Rise In National Minimum Wage Welcomed

The small increase of 1.2% in the national minimum wage was welcomed by the trades unions. It was a relief more than anything else as there had been pressure from parts of business to freeze it. The Low Pay Commission announced the NMW will increase by 7 pence to £5.80 per hour from October 2009. The increase for younger people aged 18-21 will be 6 pence to £4.83 and for 16-17 year olds the minimum will rise 4 pence to £3.57. It was also welcomed by the British Retail Consortium and the CBI who said the moderate increase was right to protect jobs in these difficult times. The BRC had suggested to the Low Pay Commission that any increase should not be above 1.5%. They also suggested it might increase job opportunities.

Unemployment Rises Again

The numbers of unemployed, the unemployment rate and the claimant count have increased. The number of vacancies has fallen along with the growth in average earnings and the number of inactive people of working age.

The unemployment rate was 7.1% in the three months to March 2009 an increase of 0.8% on previous three months and 1.8% on the year. The number of unemployed is 2.22 million an increase of 244,000 on the quarter and 592,000 on the year. The number of claimants in April was 1.51 million with an increase of 57,100 over the quarter and 710,700 on the year. The economic inactivity rate for working age people for March was 20.7%, a 0.1% decrease on the previous month and 0.2% on the year. The number of people inactive was 7.83million in the three months to March, 29,000 fewer than 3 months ago and 48,000 less than a year ago. Vacancies have fallen by 51,000 to 455,000 in the three months to April and by 232,000 on the year. There were 1.7 vacancies for every 100 employee jobs. Redundancies have risen by 27,000 on previous quarter and by 175,000 on the year to 286,000. Average earnings were lower by 0.2% in terms of annual growth in quarter to March at 3.0%.

The employment rate for working age people was 73.6% and the number of employed people 29.2million. Manufacturing has suffered with the lowest figures since records began in 1978 at 2.73 million, 160,000 fewer than last year. Productivity decreased by 8% and unit wage costs increased by 9.8% over the year and 3000 days were lost from 13 stoppages.

These figures compare well with other European countries. OECD statistics show France had 8.8% unemployment, Belgium 7.3%, Germany 7.6% and Finland 7.4%.

Retails Sales Growth Internet Sales Doing Well

Retail sales in the UK rose 6.3% over the year to April, like-for-like sales by 4.6%. It is the best sales growth for 3 years. Food increased 6.9% and 5.3% like-for-like and all categories by 2.2%. Online and catalogue sales increased by 12.5%. Like-for-like figures are measurements taken of the value of comparable sales compared to the same period a year earlier. It excludes stores that opened or closed in that year. Total sales growth figures give the value of all sales.

Fall In UK Trade Deficit

The UK's trade deficit has narrowed by £0.3bn to £2.5bn from £2.8bn in February. In the first quarter however the deficit increased to £8.3bn from 8.0% in the previous quarter. The deficit on trade in goods is estimated at £6.6bn for March with services showing a surplus of £4.1bn again as in February. The deficit on goods for the quarter was £21.1bn from £22.7bn the surplus on services being £12.8bn compared with £14.7bn in previous quarter. The deficit with EU countries was £3.3bn. Total exports of goods was £18.7bn and total imports £25.3bn. Imports and exports of consumer goods both fell in the first quarter.

Low Production Figures But Non-Durables Up

The index of production for the first quarter saw a 5.3% decrease quarter on quarter and 12.1% decrease on the first quarter of 2008. Manufacturing was 5.5% lower and electricity, gas and water decreased 3.5% on the previous quarter. Manufacturing also showed the lowest rate of decline for 13 consecutive months with a 0.1% decrease between February and March. The March index was 88.0.

In the main industrial groups output of durable goods fell 8.0% on previous quarter, consumer non-durable goods went up 0.3% on February, capital itmes were 8.9% lower and intermediate goods and energy 6.6% lower than last quarter. Other significant falls included machinery and equipment.

Shop Price Index Down

The British Retail Consortium's Shop Price Index year-on-year index fell from 2.0% in March to 1.4% in April. It is the first time it has fallen since December 2008 when there was a cut in VAT. The month-to-month index fell by 0.5%. Non-food goods are cheaper than a month ago because of discounting. Food is also cheaper this month signalling a possible end to the worst of food price inflation. Retailers’ attempts to keep shopping bills down are being prevented by rising farm gate prices for meat and vegetables.

Output Prices Up, Input Prices Down

Output prices were up 1.2% in year-on-year figures to April compared with 2.0% on year to March. Monthly figures were up 0.6% March to April reflecting the rise in petroleum products originally announced in the 2007 Budget and additional increases in excise duty. The excise duty on products like petrol, tobacco and alcoholic drinks may have added 0.2% to the overall output index. Excluding duty the annual index was up 0.9% and the monthly 0.4%. The output prices index excluding food and beverages rose 2.4% in year to April and the monthly index was up by 0.4%.

Input prices fell by 5.0% in the year to April and by 1.0% in the month March to April compared to 3.9% last year. It is the largest annual decrease since a fall of 5.3% in 2002. The fall reflects an 8.2% fall in the price of fuel in the month offset by a rise in crude oil prices. The prices of imported materials fell 1.0% in the month. Input prices for manufacturing excluding food and beverages rose by 3.3% in the year compared with 7.6% in year to March but fell 0.7% in the month.

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.

Manufacturing Recession Improvement

The Chartered Institute of Purchasing and Supply (CIPS) has recently reported that the manufacturing sector is still in recession but the figures for the month of April show a marked improvement in terms of output and new orders. The Purchasing Managers Index (PMI) for April was 42.9 from 39.1 in March. Employment, inventories and output prices fell at record pace. The biggest cuts in employment were by the larger companies but overall a third reported job losses. The PMI is moving away from its February record low.

(The Chartered Institute of Purchasing and Supply PMI Survey indicates 50%=neutral and below 50% means a contraction)

Small Business Downward Trend Expected To Slow

The CBI's latest SME Trends Survey shows that output has gone down at the fastest pace of decline for more than 20 years. The factor most likely to limit output will be sales and orders. The report also shows a fall of 64% in total new orders, the steepest fall since CBI records began, with 13% reporting an increase. The volume of output reported shows a 57% decline. Employment figures were no better with 50% of respondents reporting record increase in job losses, only 6% taking on new staff.

The number of firms working below capacity has continued to rise for over a year with 74% now running below capacity and companies are also still running down stocks. Export orders are weak. Credit and financial worries are still a problem and may limit exports. Average domestic prices continued to decline and costs continued to rise as imports are becoming more expensive.

Investment intentions are low and uncertainty about demand is likely to be a factor limiting plans to invest. However, general business sentiment is up as the decline in orders, output and employment is expected to slow down over the next three months.