High street sales surge to highest level in two years

HIGH STREET sales surged unexpectedly last month to hit their highest level for almost two years as consumers took advantage of massive price cutting.

Official figures showed retail sales rose 4.7 per cent compared with 3.8 per cent in September. This was the steepest rise since January 1998 and much higher than the 4.1 per cent expected by economists.

However, the value of sales rose much more slowly, indicating that retailers were unable to pass on any price rises to consumers. The Office for National Statistics said prices fell 0.9 per cent in October, 0.7 per cent in September and 0.6 per cent in August. The largest rise was in household goods, which includes items linked to the housing market such as electrical equipment and furniture. In the three months to October this rose 9.4 per cent, the highest since May 1998.

The ONS said that while the biggest rise was in electrical goods, which were up 13 per cent, the increase measured by value rose just 4 per cent. These figures will be seized on by the retail industry, which claims that the increasing sales volume masks the fact that prices are falling.

The ONS said: "The latest data confirm the underlying rate of growth has picked up in recent months, particularly in relation to last year when things were subdued. October was much the same as previous months but in relation to last year it is possibly a bit stronger."

The minutes of the last meeting of the Monetary Policy Committee showed that DeAnne Julius, the lone "dove", believed intense competition in the economy would restrain inflation.

Analysts said yesterday's data appeared to support that. "Strong retail competition has seen a large squeeze in margins," said Richard Iley of ABN Amro. "The implication of this is a benign outlook for interest rates. Despite buoyant consumption and nascent cost pressures at the factory gate, there is little prospect of inflation taking off."

The ONS said the figures revealed an early impact of spending ahead of the millennium - but perhaps not what people expect. It said one major retailer had reported a surge in wine sales in preparation for the millennium.

The buoyant sales of household goods were supported by separate figures yesterday that showed mortgage lending enjoyed another strong rise in October. Lending for house purchase rose pounds 300m to pounds 8.3bn in October, the Council of Mortgage Lenders said.