The UK retail sector faced worsening trading conditions in August, according to the latest CBI Distributive Trades Survey, as sales volumes fell at their fastest pace in more than a year and business sentiment deteriorated further.

The CBI's retail sales balance dropped to -48% in August, down sharply from -26% in July. Although sales are still expected to decline in September, firms anticipate the pace of contraction will moderate, with the balance forecast to improve to -22%.

Retailers also reported that sales were well below normal seasonal levels, with the balance deteriorating to -26% from -18% in July. Expectations for September remain subdued, with sales projected to continue undershooting seasonal norms.

The prolonged period of weak consumer demand weighed heavily on confidence across the sector, and retail sentiment fell at a faster pace in August. Despite the difficult environment, there were tentative signs that investment intentions may be stabilising. Retailers still expect to reduce capital expenditure over the next 12 months, but the planned cutbacks are the smallest since early 2024. Employment also remained under pressure, with retail headcount declining in August, although at a slower pace than earlier in the year. That combination of weaker sales, cautious investment plans and softer hiring matters because retail is a major employer and a key barometer of household spending trends, which often feed into broader distribution activity.

Retail selling prices increased at a faster rate than in the previous quarter, and firms expect inflation in retail prices to accelerate significantly in the months ahead. With parliament returning next week, thoughts will start turning to the Autumn Budget and the steps that the Government can take to restore confidence across retail and the broader distribution sector, including the business rates system and employer costs referenced by the CBI.

Commenting on the survey, a CBI Lead Economist said: “Retail firms grew more downbeat in August as they grappled with sharply falling sales volumes. These weak trading conditions, which were echoed across the broader distribution sector, continued to weigh on retailers’ investment and hiring plans.

“With parliament returning next week, thoughts will start turning to the Autumn Budget and the steps that the Government can take to restore confidence across retail and the broader distribution sector.

“Meaningful business rates reform is long overdue, with firms desperate for a fairer system that rewards, rather than penalises, investment and growth. The Government should also look to cut Employer NICs to support hiring and ensure the sector can continue to provide job opportunities, particularly for young people.”

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