Retail deflation at record level, says CBI

Britain's retailers are cutting their prices in the greatest numbers for nearly two decades, according to figures out yesterday.

Britain's retailers are cutting their prices in the greatest numbers for nearly two decades, according to figures out yesterday.

The survey, which provided fresh evidence of high street deflation, came as a separate report revealed that growth in the manufacturing sector suffered an unexpected fall in July.

The reports - the last to be published before today's meeting of the Monetary Policy Committee - were hailed by the Confederation of British Industry as "the final nail in the coffin" of an interest rate rise.

The CBI said its poll showed that the proportion of retailers cutting prices on the high street was the highest, at 40 per cent, since the survey began in 1983. Despite the savage discounting, the volume of sales also fell.

Alastair Eperon, the head of the survey panel, said: "Pricing pressures remain intense as retailers aggressively compete to offer value at every level."

The survey supported official inflation figures for July that showed prices of clothing and shoes plunging at the fastest rate since 1947.

Separate data from the Office for National Statistics showed the output of the manufacturing sector dipped by 0.3 per cent in July, a reversal of June's 0.2 per cent gain and confounding forecasts for a small rise.

The drop was almost wholly accounted for by an 11.7 per cent plunge in output of mobile phone factories. The gloom was compounded by a similar reversal in the fortunes of the booming pharmaceutical sector, which fell 6.1 per cent, and a further 4.7 per cent fall in car production.

"These are industries with large weightings that have fallen by significant amounts," said an ONS statistician.

The City expects the MPC today to leave rates on hold at 6 per cent, and some analysts said the weakness in yesterday's figures made that outcome a near certainty.

According to a separate report from the business advisers BDO, confidence among UK firms has fallen to its lowest level since early 1999.

Douglas McWilliams, chief executive the Centre for Economics and Business Research, which compiled the survey, said: "The tightness of monetary policy in the second half of 1999 appears to have had its desired effect, reducing the pressure for rates to rise this month."

But many economists said this did not mean rates had peaked. The National Institute for Economic and Social Research estimated the economy grew 0.8 per cent in the three months to August compared with 0.9 per cent in July.

"Since growth remains strong, further interest rate rises seem likely," it said.