The Confederation of British Industry said yesterday that the number of retailers expecting prices to be lower this month than last Christmas outweighed those saying they would be higher - the first time this has happened in the 16 years the CBI has run the survey. It also found prices were flat last month for the first time.
The survey adds to growing evidence that retailers are struggling to cope with intense competition on the high street that is driving down prices. Separate figures showed house prices fell last month while manufacturing industry grew for the sixth month in a row, indicating that the imbalance in the economy is starting to correct.
The CBI said retailers expected sales to rise "significantly" this month following a strong recovery in volumes in November. Alastair Eperon, chairman of the distributive trades panel, said the pick-up in November reflected the impact of competitive pricing strategies. "Fierce competitive pressures are set to hold down prices," he said, adding that interest rates should stay on hold next week.
The main casualties were footwear and leather retailers, which suffered a second month of sharp decline in sales volumes and prices. Clothing shops and booksellers also reported falls.
Sectors associated with the housing market, such as furniture, carpets and household goods reported the strongest increases in sales volumes. However, more than two-thirds of retailers of household goods said prices fell last November and would fall again this month.
The survey supports anecdotal evidence that big name retailers such as Marks & Spencer, House of Fraser and C&A are cutting up to a third of prices over the festive period. "If there's one thing we've learnt in this retail recovery, it's that bargain hunting is in fashion," said Adam Law of Barclays Capital.
Barry Naisbitt of Abbey National added: "We are in a rather different world of consumer behaviour. They are rather reluctant to take higher prices and continue shopping around."
In sharp contrast, a shortage of raw materials and the surging oil price sent manufacturers' input prices soaring to their highest level for four years. The cost of raw materials rose for the fourth month in a row hitting 57.1 last month compared with 56.3 in October on an index where anything over 50 indicates a rise. The Chartered Institute of Purchasing and Supply, which compiled the data, said: "Widespread shortages, strong global demand and high oil prices ... have led to a further acceleration in the rate of input price inflation."
Its report also showed the sector expanded to its highest level for two years, but at a slower rate than forecast. Its index rose to 54.2 compared with 54.1 in October and forecasts of 55.0. "Strong domestic demand for UK manufactured goods, resulting in part from the run-up to the millennium, was supplemented by a modest increase in the demand for exports," it said.
Meanwhile Halifax, Britain's largest mortgage lender, said prices fell 0.5 per cent last month. But it said the housing market was still enjoying double-digit inflation - 10.7 per cent compared with 10.8 in October.
"The favourable affordability situation, together with a further improvement in economic conditions, should support a relatively strong housing market over the next 12 months," it said. "Higher interest rates, however, will constrain housing demand. Accordingly annual house price growth is forecast to slow to 8 per cent by the end of 2000."