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Retail sales 'weaker than expected'

Retail sales volumes were weaker than expected in September, official figures showed today, as anxiety ahead of the Government's deficit-busting cuts deepened.

The 0.2% decline announced by the Office for National Statistics (ONS) represented a second unexpected monthly decline in sales, after volumes dropped 0.5% in August.

The figures come amid warnings from retailers over the impact Chancellor George Osborne's belt-tightening spending review would have on the high street.

Howard Archer, chief UK economist at IHS Global Insight, said: "The second successive fall in retail sales in September is surprising and particularly worrying given the importance of consumer spending to the economy."

Today's figures will add weight to the concerns raised by major high street players, such as Debenhams and Argos-owner Home Retail, over the impact that the cuts and pending VAT rise will have on consumer spending.

Samuel Tombs, economist at Capital Economics, said the unexpected September drop suggested shoppers were reining in their spending even before the fiscal squeeze had started.

He said: "Today's figures provide further evidence to suggest that the period of surprising consumer resilience is coming to an end. We continue to think that the colossal fiscal squeeze ahead will mean that household spending falls by around 0.5% next year."

Retailers are also battling with higher costs, as commodity prices rise - such as cotton which recently hit a 15-year high.

The breakdown of September's figures revealed volumes at food stores and non-food stores both increased just 0.1% from August, while household goods stores and department stores rose 0.2%.

The tepid growth was offset by a 0.8% drop in sales volumes of textile, clothing and footwear, while online and mail order sales also dropped 0.5%.

James Knightley, an economist at ING, said the figures will fuel expectations of a second cash injection into the economy from the Bank of England to boost recovery.

Minutes from the October meeting of the Bank's policymakers revealed members were split three ways over monetary policy - with Adam Posen voting in favour of an increase in quantitative easing.

Earlier this week, Home Retail Group reported a 11% drop in pre-tax profits to £103 million in the 26 weeks to August 28 with sales at catalogue chain Argos down 6.5% on a like-for-like basis. The group warned that Argos' core customers had been hit harder by the economic climate.

Debenhams, while posting a 20% boost to half-year profits, today revealed like-for-like sales were flat on a year earlier and raised concerns over the "general retail environment".