Retail sales at lowest level since early 2006

Retail sales continued to defy expectations today, despite the annual rate of growth falling to its weakest level in more than two years.

The Office for National Statistics (ONS) said that UK retail sales declined by 0.4 per cent in September, a month when consumer confidence was shaken by turmoil in financial markets.

The decline was better than expected by many economists, although the fall still left annual growth at 1.8 per cent, which is the lowest level since February 2006.

Official retail sales figures have so far confounded experts, suggesting that the high street is proving more resilient in the face of strong economic headwinds.

Economists had been expecting a fall of as much as 1 per cent in September and had also been surprised by figures for July and August when retail sales rose by 0.9 per cent and 1.1 per cent respectively.

Recent survey results from the British Retail Consortium (BRC) and business body the CBI have painted a grim picture of Britain's high street trading conditions.

Like-for-like sales fell 1.5 per cent in September and have been down in six of the last seven months, according to the BRC's figures last week.

The CBI's poll of retail firms last month also showed a sales fall for the sixth month in a row.

The ONS said its monthly data was highly volatile and confirmed the underlying growth of volume of retail sales has fallen sharply over the past year.

Soaring food price inflation has been inflating the value of sales, it added.

A drop in demand for "big ticket" electrical and household items was the biggest drag on sales, the ONS said.

Poor sales of clothing and footwear also impacted the result, coming after a surge in demand the previous month as the back-to-school rush helped stores.

Economists said while the figures were better than forecast, the outlook for the retail sector over the key Christmas selling period remained gloomy.

Howard Archer, chief economist of Global Insight, said: "The prospects for consumer spending look bleak as the financial crisis adds to the intense pressures already facing households.

"This is particularly worrying for retailers as the vital Christmas period looms."

Recent indicators, such as steep increases in unemployment, suggest worse is to come for retailers, added Royal Bank of Scotland economist Ross Walker.

He said: "Overall, retail sales have continued to prove a little more resilient than expected, but the more formidable challenge - stemming from accelerating unemployment - is still to come."