Retail sales pick up ahead of VAT rise

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The Independent Online

Retail sales volumes picked up in October amid signs that shoppers brought forward purchases ahead of January's rise in VAT to 20%.

The 0.5% increase announced by the Office for National Statistics (ONS) represented a turnaround from two months of sales declines, although the performance was still 0.1% lower than the same month a year earlier.

The growth in sales volumes was driven by non-food stores, including demand in textile, clothing and footwear shops.

Howard Archer, chief European economist at IHS Insight, described the sales growth as "decent but unspectacular".

He added: "It is likely that retail sales will benefit to a limited extent in the final weeks of this year from consumers looking to make purchases of more expensive items ahead of the January VAT increase from 17.5% to 20%.

"Retailers will also be fervently hoping that consumers decide to splash out and have a good Christmas despite their worries and uncertainties over the economic outlook."

The ONS reported anecdotal evidence that shoppers had made purchases of "big ticket" items such as furniture and computers ahead of the VAT rise.

It added there were no signs that the recent spike in cotton prices had so far caused an upward impact on high street price tags. The estimated price of retail sales in October was 2.2% higher than a year ago, the ONS said.

As well as subdued demand, retailers are battling to protect margins following sharp rises in commodity prices.

Stephen Robertson, director general of the British Retail Consortium, said: "Shaky consumer confidence continues to discourage spending, particularly on non-essential items. Retailers are being squeezed as they use heavy discounting and promotions to tempt wary shoppers into spending their limited spare cash."

Vicky Redwood, senior UK economist at Capital Economics, pointed out the 0.5% rise in sales reversed only half of the drop seen in the previous two months.

"What's more, sales might well be receiving some temporary boost as consumers start to bring forward spending ahead of the VAT rise. Clearly, this will just store up weakness for the start of 2011. Indeed, even if spending receives a further VAT boost in the final few weeks of the year, the outlook for next year remains pretty bleak," she added.