Consumers keep spending despite gloomy outlook

Click to follow

UK retail sales volumes accelerated at their fastest annual rate for 13 years last month, testifying to the resilience of consumer confidence amid rising unemployment and slowing global economic growth.

However, the Bank of England took the shine off the figures by warning that high levels of consumer borrowing risked creating a "vulnerable" situation in the future.

Last month's 7.1 per cent year-on-year rise in retail volumes was the highest since May 1988, National Statistics said. Against October, volumes rose at 1.3 per cent, their fastest monthly rise in almost two years. The acceleration reflected frenzied clothes shopping during chilly weather. There was also strong demand for household goods.

Shopkeepers appeared to be discounting aggressively, sending the popular deflator measure to minus 0.2 per cent.

Retail data is keenly watched since the consumer has kept the UK motoring when other economies have stalled. Economists had forecast a monthly rise of only 0.4 per cent during November, fearing that consumer confidence would dip.

National Statistics also revised last month's figures upwards.

Economists said the Bank of England would seek signs that the resilience of the consumer had wavered before cutting interest rates further. It has taken rates to a 37-year-low of 4.0 per cent in a bid to boost spending and keep inflation close to its 2.5 per cent target.

Simon Rubinsohn, the chief economist at Gerrard, said: "Providing households continue to spend with such vigour, the Bank's expectation is likely to remain that inflation will stay within the target bank."

However, David Clementi, the Bank of England's Deputy Governor, suggested that consumers' eagerness to borrow at a time of low rates could be storing up problems. "Levels of borrowing in the corporate and household sectors could imply some future vulnerability," he said.

The picture from manufacturing industry remains troubled. The Confederation of British Industry said optimism about industrial output was at its lowest level since October 1998.

In the US, retail sales staged a dramatic about turn last month, falling by a record 3.7 per cent, having climbed by a record 6.4 per cent in October. The figures were dragged down by a sharp drop in car sales, which had soared in October in response to dealers offering zero per cent financing deals.

US factory gate prices declined 0.6 per cent during November amid lower energy prices.