Britain's Retail Downturn is Slowing Down, But Troubles Remain

British retailers reported the smallest downturn in sales since January, bucking a sustained downward trend that has been taking place for five years, a recent survey by the Confederation of British Industry (CBI) has found.

The biggest improvements came for wholesalers, with the sector seeing stable volumes for the first time in over two years.

However, before retail owners run to the bank, the broader picture remains subdued. Experts predict recovery is still a way off, as sellers continue to face weak consumer confidence and rising costs – with further drops expected to last into Autumn.

For shop owners, the findings offer a glimmer of hope in an otherwise gruelling year. Yet, any real relief will likely hinge on new Prime Minister Andy Burnham’s plan to save the high street by overhauling business rates.

Retail sales dropped by just -26% in July, its smallest decline in six months

The UK’s retail sector has been grappling with a sales slump for years, with many shop owners being caught in a bind between weaker consumer spending and elevated cost pressures like rising National Insurance contributions and minimum employee wages.

However, new findings from the CBI show signs of relief. The CBI’s headline distributive trades balance, which tracks activity against the previous year, climbed to -26 in July, from -54 in June, representing its strongest reading since January.

Wholesalers saw the biggest rise, with sales volumes growing to +2% from -20% the previous month, potentially indicating that businesses are starting to rebuild stock levels after months of cautious ordering.

The survey results were far from overwhelmingly positive, though. Despite retail sales volumes falling at a “markedly” slower pace in July, the CBI still described trading conditions as poor, and expects that sales will continue to fall by a similar percentage in August.

According to CBI lead economist Martin Sartorius, retail owners shouldn’t expect sales to recover fully anytime soon. He said that “recovery still looks some way off as gloomy sentiment and elevated cost pressures weigh on activity,” highlighting that the sector is still very much under strain, despite the downturn easing slightly.

As sales continue to slump, could Burnham provide a lifeline to retail businesses?

Retail has had little to cheer under Labour so far, with Keir Starmer overseeing a rise in employer National Insurance contributions, an increase to the National Living Wage, and the expiry of Covid-era business rates relief.

However, new Prime Minister Andy Burnham aims to do things differently, and has pledged to take drastic measures to support high street businesses.

Central to Burnham’s plan is a shake-up of business rates. He’s proposed raising the threshold for 100% small business rates relief from £12,000 to £18,000, with the upper threshold for tapered relief also rising from £15,000 to £21,000. Together, the changes would lift more than 140,000 small premises out of paying business rates altogether.

To fund this relief, the former Mayor of Manchester intends to raise property taxes on large warehouses – a move aimed at online giants like Amazon and ASOS who Burnham argues should pay their fair share to support brick-and-mortar retail.

For retailers already grappling with weak consumer demand and rising employment costs, lower business rates could provide some much-needed breathing room. However, since business rates are only one of several challenges facing the sector, the proposals are unlikely to provide an immediate fix.

For now, retailers will take the smallest downturn in six months as a welcome pause – but with confidence still fragile and costs still climbing, the high street’s recovery is far from secured.