Analysts said this would help keep inflation low and postpone the need for further rises in interest rates. The FT-SE 100 index ended 32.9 points higher at 3,112.7 after a week of decline, helped by a rally in the September FT-SE futures contract before its expiry today.
The year-on-year increase in the volume of retail sales fell to 2.9 per cent from 3.8 per cent in July. The value of sales, at pounds 2.85bn a week in August, was 3.4 per cent higher than a year earlier, compared with 4.6 per cent in July.
Simon Briscoe, UK economist at SG Warburg, said: 'It does look as if total cash spending is being hit by the tax rises.'
Hugh Clark, trading policy director at the British Retail Consortium representing more than 90 per cent of retailers, said: 'The results for August confirm an even more cautious approach to spending.'
Lower food sales accounted for 0.2 points of the 0.3 per cent fall in total volumes of goods sold between July and August, but the decline in food sales only partly reversed a big rise the previous month. Clothing and footwear sales fell 0.6 per cent. Economists said this signalled shoppers' resistance to price rises in this sector in August.
Sales of household goods rose 0.7 per cent in August after falling during the previous two months. In the latest three months sales of household goods were 0.1 per cent below the preceding quarter.
The weakest sector over the three months to August was other non-food retailers - including chemists, jewellers, toy shops and booksellers - whose sales fell 0.9 per cent compared with the previous three months.
Separate statistics showed a sharp rise in machine tool sales in July, up 12 per cent on a year earlier and at their highest since July 1991 - although still 23 per cent below their 1990 level.
The Engineering Employers' Federation said the engineering industry was on course for a strong recovery, according to a survey of 1,700 member firms.
But it warned that the Government risked throwing the recovery off course unless it took preventive action in November's Budget.
The EEF wants tax changes it believes will aid recovery, including 100 per cent capital allowances on the first pounds 200,000 of plant and machinery investment each year.
The survey found that output, orders and capital expenditure were all rising.
'The rate of recovery is distinctly better than we had expected,' said Ian Thompson, the EEF's economic adviser.
About 51 per cent of firms saw output rise in the three months to the end of August, and 13 per cent reported a decrease.
More than 30 per cent of those surveyed were planning to raise capital expenditure, with 61 per cent expecting to maintain levels.Reuse content