Retailers still suffering as sales remain in doldrums

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The Independent Online

Trading conditions on the high street remained tough last month, according to official figures yesterday that showed a small rebound in retail sales after January's record slump.

The volume of goods passing through retailers' tills rose 0.5 per cent in February, the Office for National Statistics said.

It partially offset the 1.6 per cent fall in January, which was revised down from 1.1 per cent. The value of sales in January fell for the first time since World War II.

George Buckley, the chief UK economist at Deutsche Bank, said: "The failure of retail sales to recover more sharply in February after such a large fall the previous month suggests that the sector remains fragile."

Sales over the three months to February rose 0.5 per cent on the previous quarter, the slowest rate for five months.

Because December was a strong month, the outturn for the first quarter of this year will be negative even if March posts another 0.5 per cent gain, meaning retail sales will act as a drag on overall GDP.

The Office for National Statistics played down a positive interpretation of the 0.5 per cent monthly gain, saying that the actual level of retail sales was still lower than in November.

"The pick-up in consumer spending in the latter months of 2005 is losing momentum," Howard Archer, the chief UK economist at Global Insight, said. "The Bank of England is too optimistic on the growth outlook and will eventually end up trimming interest rates by a further quarter-point."

The Bank's inflation report showed it is relying in part on a pick-up in consumer spending to justify its forecasts for above-trend economic growth.

Other analysts said the latest upbeat data on the housing market from the Royal Institution of Chartered Surveyors, which said activity was at a two-year high, should support spending going forward.

The breakdown of the Office for National Statistics figures showed that a rise in sales from clothes and shoe shops and smaller stores outweighed falls in department stores, household goods outlets and mail order catalogues.

Sales in textile, clothing and footwear stores rose 3 per cent, although that followed two months of weak sales. The fashion chain French Connection reported a sharp decline in profits this week.

Sales of household goods recorded a 1.1 per cent monthly fall, despite the upturn in the housing market. Geoffrey Dicks, the chief UK economist at Royal Bank of Scotland, said: "We are moving house but not buying the kit to go in it."

Meanwhile, Mervyn King, the Governor of the Bank, highlighted the importance to monetary policy of containing inflationary expectations. In a speech at a European Central Bank conference, Mr King said a robust monetary policy strategy - one that convinces citizens that the central bank will preserve the value of money - was crucial since it shaped their expectations on price developments.

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