CBI urges interest rate freeze despite rebound in retail sales

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The Independent Online

The CBI urged the Bank of England yesterday to keep interest rates on hold tomorrow, despite issuing a report showing a rebound in high street sales last month.

The CBI urged the Bank of England yesterday to keep interest rates on hold tomorrow, despite issuing a report showing a rebound in high street sales last month.

Retail sales rose more than expected in October and at their sharpest pace in three months, the UK's largest employers' organisation said.

A separate survey, however, showed that retailers cut their prices by the largest amount for at least seven years last month, implying that sales growth was won at the expense of margins.

The number of retailers reporting higher sales in October than a year ago outnumbered those suffering a fall by 11 per cent. In September, 9 per cent on balance said sales had fallen. The increase was better than the 4 per cent retailers had forecast last month but was well below the peak of 41 per cent in June.

But the CBI said growth was still below normal for the time of year and that the underlying trend was still downwards. John Longworth, the chairman of the CBI's survey panel, said: "A rate increase in November would be damaging and there is no need for the Bank to consider a further rise for the foreseeable future."

Economists in the City said the mixed messages from the survey would not prompt the Bank's Monetary Policy Committee to raise rates when it meets today and tomorrow.

James Knightley, at ING Financial Markets, said: "Today's figure brings the survey more into line with the official data and is therefore unlikely to affect the MPC's decision."

Data from the Office for National Statistics recently showed sales volumes rose 1 per cent in September - the steepest rise since January.

Simon Rubinsohn, the chief economist at the fund manager Gerrard, said: "It does demonstrate that talk of the demise of the consumer may be a touch premature and we still expect further rates hikes next year."

Others said the growth in retail sales was driven by the depth of discounting on the high street. The British Retail Consortium said shops cut their prices by 0.4 per cent on average last month. This took the annual rate of deflation on the high street to 1.37 per cent, the biggest fall since BRC records began in 1997. Official figures last month showed clothes prices fell by almost 6 per cent in September.

Meanwhile, the number of people fearing a fall in house prices rose last month despite signs of growing optimism about the outlook for the overall economy, a survey shows today. One in six households expects the value of their home to drop, a slight increase from September, according to a poll of 1,000 people for Nationwide building society. The total is a substantial increase from the one in 10 who said they were worried about a falling market just eight weeks ago.

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