High street sales fall again

High street sales fell for a second month running in June and there are warnings that retailers will face harsh times ahead as George Osborne's tough budget dampens consumer spending. The CBI's monthly survey of retailers showed that more suffered sales falling on a year ago than rising at the start of this month. The balance of -5% was better than May's surprisingly weak -18% and beat retailers' own expectations, but was still below economists' predictions for a return to growth at +5%. The CBI said there were hopes of at least a limited rebound on the back of the World Cup and as shoppers hurry to make big purchases before a VAT hike in January. But mostly, retailers expected sales growth to be muted. The main blow to business in early June came from slack demand for footwear and leather goods while there was also a drag from hardware, china and DIY. On the upside, shops reported buoyant sales of food, drinks and TVs as households got ready for the World Cup. The survey was conducted between 27 May and 9 June, just before the football finals kicked off. Retailers are optimistic the World Cup effect will continue in July and a balance of 11% of firms expect volumes to be up on a year ago. "Retailers are hopeful that sales will strengthen next month. As the survey pre-dates the emergency budget, news that the feared rise in VAT will not take effect until next January may well also encourage some advance spending over the second half of the year," said Ian McCafferty, CBI chief economic adviser. While the VAT rise to 20% from 17.5% announced in the budget will not take effect until next January, the British Retail Consortium said it will costs jobs and ramp up inflation. Economists predict that retailers will face pressures on the high street even sooner thanks to the budget's raft of spending cuts and tax hikes. "The overall outlook for consumer spending still looks pretty weak. Rising taxes, frozen or falling benefit payments and falls in the public sector pay bill will all squeeze household incomes severely," said Vicky Redwood at Capital Economics.