Good news on high street sales

Retailers predicted another month of strong growth today in a further sign that the feared slump in high street spending has yet to materialise.

The CBI business lobby group added in its retail survey that sales volumes were higher than a year ago in August for the second month in a row.

More than half of retailers surveyed said their volume of sales rose during the first two weeks of August, while 18% said they fell. The resulting balance of plus-35% was similar to the pace in July and the fastest rise since April 2007, though it was slower than had been expected a month ago.

Retailers told the CBI that they expected sales growth to remain strong next month, with participants also optimistic about the general business situation in the coming three months.

Clothing stores, grocers and durable household goods shops saw the best growth as better weather at the beginning of August and summer sales boosted demand.

Despite the progress, the CBI's head of economic analysis Lai Wah Co said it was unclear how long the strong growth will continue.

She said: "The broader outlook for consumer spending is still uncertain, given the VAT rise next year, subdued pay awards and the feed-through of public spending cuts to job losses."

This month's improved retail performance meant the number of people employed in the sector was broadly unchanged in the year to August, the first time it has not fallen on a quarterly basis since February 2004.

But there was a further warning on inflationary pressures in today's survey as retailers reported the fastest pace of price increases since February 1992. Two-thirds of firms said average selling prices were up on a year ago, while 9% said they fell.

Bank of England governor Mervyn King said last week that rate-setters had been "surprised" at the recent strength of inflation and warned it would be difficult to judge how far and how fast it would fall.

High street spending is likely to take a dent next January when VAT is hiked to 20% as part of Chancellor George Osborne's deficit-tackling measures.