Retailers Slash Investment and Orders as Reeves' Raid Bites

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Retailers are bracing for challenging times ahead, with sentiment among businesses falling at the fastest pace in two years, according to the Confederation of British Industry’s (CBI) latest quarterly Distributive Trades Survey.

Weakened confidence, declining sales, and rising operational costs are driving cuts in investment, supplier orders, and cautious hiring plans.

The survey revealed that business sentiment dropped sharply in November, with a balance of -21% compared to -13% in August. This marks the lowest reading since November 2022, when inflationary pressures were at their peak.

The data is the first to cover the reaction to the government's business tax raid announced in the October budget.

"The last time retailers felt this gloomy was back in November 2022, at the peak of the inflation shock. This makes the sharp decline in sentiment this month all the more telling," says Ben Jones, Lead Economist at the CBI.

The government announced it would raise the tax businesses pay for hiring workers, hoping to raise £20BN. It also said businesses would be forced to pay a higher minimum wage from April while introducing new law changes that will favour employees.

"The stark rise in Employers' National Insurance next year will hit retailers hard. And the planned increase in business rates for higher-value properties will add significant operational costs for distribution centres," he adds.

Retailers expect to scale back capital expenditures over the next 12 months, though less sharply than previously forecast. Their balance will be -27% compared to -35% in August.

Orders placed with suppliers are also set to decline faster, with a balance of -36% expected in December after a moderate drop in November (-13%).

Retail sales volumes declined moderately in the year to November, with retailers describing them as “poor” for the time of year (-22%).

Looking ahead to December, sales volumes are expected to remain below seasonal norms, albeit to a lesser extent (-15%).

“The government must urgently partner with businesses across the distribution sector to ease the cumulative cost burden, which threatens to weaken investment and hiring in the year ahead, as well as resulting in higher prices for consumers," says Jones.

Although employment in the retail sector fell in the year to November (-18%), the decline was at the slowest rate in a year.

Retailers expect headcount to be broadly stable in December, with a balance of -2%, signaling a pause in workforce reductions.

Retailers are grappling with high stock volumes relative to sales, with a balance of +21% reporting that inventories were “too high” in November. Meanwhile, selling price inflation eased to +24%, below the long-run average for the third consecutive quarter, but retailers anticipate inflationary pressures to accelerate next month (+33%).

The broader distribution sector, which includes wholesale and motor trades, also faces challenges. Motor trade sales declined at a faster pace in November (-38% from -22% in October), with a further contraction expected next month (-42%).

"Retailers are trying to navigate a perfect storm of cost pressures and subdued consumer demand. Without urgent government support to alleviate these burdens, the sector’s ability to invest and grow will be significantly undermined," says Jones.