High street sales are falling at their fastest rate since the height of the recession in 2009 as struggling households put the brakes on spending, according to a survey that is a grim omen for struggling retailers this Christmas.

The CBI’s closely watched survey recorded a “steep drop” in retail sales in October. The slump sent shockwaves through the high street, with the CBI’s chief economist, Rain Newton-Smith, warning of a “softening” of demand as inflation ate into Britons’ spending power. Department stores and specialist food and drink outlets bore the brunt of the spending slowdown.

“It’s clear retailers are beginning to really feel the pinch from higher inflation,” said Newton-Smith. “While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.”

The bleak snapshot of high street trading provided by the CBI – which also reported that orders placed with suppliers had dropped at the fastest rate since the spring of 2009 – came as Asda’s income tracker documented a slump in the spending power of average households.

Kay Neufeld, an economist at the Cebr consultancy, which conducted the supermarket study, said: “We have seen family spending power decline in five out of the last six months, underlining the mounting pressures on households’ budgets.”

London was the winner in the race for higher disposable incomes, Neufeld said, after household income in the capital rose by 2.4% compared with a national fall of 0.5%. But in all regions, incomes failed to rise by more than the current inflation rate of 3%.

The findings chimed with official figures for the year to April 2017 that showed London’s income growth outstripping other regions, although the biggest gains were in inner London boroughs. Wages in outer London suburbs increased by 1.2%, compared with 4.4% in the centre of the city, according to data from the Office for National Statistics.

The east Midlands and East Anglia were the only other regions where wages increased by more than the inflation rate in April, which stood at 2.6%.

Q&A What is inflation and why does it matter? Show Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common. If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that. Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%. A relatively new phenomenon, inflation has become a real worry for governments since the 1960s. As a rule of thumb, times of high inflation are good for borrowers and bad for investors. Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage. On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode. The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI). The retail prices index (RPI) is often used in wage negotiations.

Further evidence of an income squeeze was provided by new research from Lloyds Bank, which found that women and families across the UK were “feeling the strain” of rising living costs.

Based on a sample of its current account data, Lloyds said consumers’ essential spend – a figure that includes rent, bills, food and fuel costs – had increased by 2% in September versus a year ago. This was the 16th consecutive month of year-on-year growth.

“When paying more for everyday items like food and fuel, people are faced with tricky decisions on where to cut back in other areas,” said Robin Bulloch, the managing director of Lloyds Bank, who said there was evidence of Britons staying away from the shops to avoid impulse purchases and cutting down on nights out.

Almost two-thirds of the 2,000 people polled by Lloyds felt worried about current levels of inflation. The research found 56% of women felt under pressure to reduce their spending, compared with 47% of men. Families in particular were feeling the pinch, according to the survey, with 60% of those with children saying they felt under pressure to cut back, versus just 47% of those without children.

The CBI said 50% of retailers polled for its survey suffered declining sales in October, while only 15% benefited from an increase, leaving a rounded balance of -36%, the lowest since March 2009.

The CBI survey adds to the mixed economic signals to be considered by the Bank of England next week when it decides whether to increase interest rates for the first time in more than a decade. A rise could help keep inflation in check and strengthen the pound, but household borrowing costs would also grow.

Uncertainty surrounding the outcome of the UK’s Brexit negotiations has also preyed on consumer confidence, which has declined sharply over the past 18 months and depressed spending. Figures estimating GDP growth in the third quarter showed the services sector holding up despite recent declines in wages adjusted for inflation. However, the retail sector recorded its slowest rate of growth in four years.

Christmas has already begun on the high street, with novelty jumpers, crackers and mince pies decking the aisles. Many chains bank the lion’s share of annual profits in November and December, and retail bosses are battling for business after a tough year in which the weakness of sterling pushed up the cost of importing goods, squeezing profit margins.

On Thursday, Debenhams said the pattern of trading was “volatile” as it reported a 44% dive in profits. The department store confirmed the closure of two stores, in Eltham, south London, and Farnborough, Hampshire, affecting about 80 jobs. They are the first of up to 10 UK branches that Debenhams has earmarked for closure.

Retailers are all trimming back their high street presence as shoppers shift from flicking through the rails in stores to perusing their phones and tablet computers at home or on the bus. The likes of Marks & Spencer, Mothercare and all the major supermarkets have closed stores while investing in their online operations.



The retail sector employs around 3 million people, but store groups are slashing jobs and working hours as shoppers batten down the hatches and sales move online. There was a “record” reduction in retail jobs in the last quarter, according to the British Retail Consortium, with the number of hours worked in retail down by 4.2% and the total number of store workers falling by 3%.