Retailers end the year on the rise as Christmas sales hit four-year high

The high street enjoyed its best Christmas for four years in 2005, easing the pain of what was the worst year for retailers since the Second World War, government figures showed yesterday.

The value of sales passing through high street tills in December rose 3.6 per cent on the same month in 2004, the best result for a December since 2001. Volumes were at a three-year high of 4 per cent in a sign that shops had cut some prices to win customers.

But the solid performance capped a miserable 2005 for retailers. The value of their sales rose 1 per cent to £249bn, the lowest rate of growth since 1943.

The upbeat figures for December boosted hopes in the City that the retail sector was passed the worst of a slowdown in consumer spending that had gripped the high street for much of last year. It was also seen as lowering the chances of a cut in interest rates next month, pushing the pound up against the dollar and euro.

The message was reinforced by separate figures showing bank mortgage lending posted its highest monthly rise since June 2004. Loans rose £5.4bn in December compared with £5.2bn in November, according to the British Bankers' Association. Philip Shaw, the chief UK economist at Investec, said: "Strong retail sales and firm mortgage data have reduced the chances of a near-term easing by the Monetary Policy Committee."

The Office for National Statistics said sales volumes grew 0.4 per cent in November and December to deliver annual growth of 4 per cent. The growth was driven by a 5.1 per cent monthly surge in sales from household goods stores such as furniture and electrical retailers. Small stores and mail order and internet retailers also enjoyed healthy growth.

Overall, the non-food sector enjoyed growth of 1 per cent on the month and 5.6 per cent on the year, the highest since January 2000. This contrasted with a 0.6 per cent fall for supermarkets in a month that normally sees growth in the run-up to Christmas.

It followed similar upbeat reports from the British Retail Consortium and the CBI, the employers' group. Tesco, Waitrose and J Sainsbury enjoyed bumper sales growth of more than 5 per cent, while the department stores John Lewis and House of Fraser saw sales surge more than 7 per cent compared with a year ago.

Separate figures from IMRG, an industry body for internet retailers, showed shoppers spent nearly £5bn online in the run-up to Christmas - up 50 per cent on the previous year.

John Butler, the UK economist at HSBC, said it was only the third time in 20 years that retail sales volumes had risen in November and December. He said that given retail sales made up one-fifth of economy growth, the 1.6 per cent quarterly growth should alone contribute 0.3 per cent to the economy in the final quarter of the year. "We predict GDP growth of 0.6 per cent when the figures are published next Wednesday," he said.

But Neil Blake, the senior economist at Experian, the credit-checking agency, warned the factors that slowed spending in 2005 - rises in borrowing costs, the tax burden, unemployment and fuel and energy bills - would continue to bite this year. He forecast 2.6 per cent growth this year.

Paul Clarke, the national business banking director for retail and wholesale at Barclays, said the market was still "tough" on the high street. "It will be the retailers who continue to deliver great stock management discipline and excellent product that will come out on top in 2006."

Christmas saw a slew of casualties in the retail sector with high street names such as Unwins, Tiles R Us, MVC and Kookai going to the wall.