Surprise fall in retail sales eases fears of possible interest rate rise

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The Independent Online

Retail sales suffered an unexpected fall last month according to official statistics that jarred with some retailers' reports of a bumper Christmas and put a brake on forecasts of an imminent hike in interest rates.

Retail sales suffered an unexpected fall last month according to official statistics that jarred with some retailers' reports of a bumper Christmas and put a brake on forecasts of an imminent hike in interest rates.

The amount of goods passing through the shops' tills last month was 0.3 per cent lower than in November, compared with the previous month's 1.0 per cent leap. This was the first fall in a year and half and left the annual growth rate at 5.7 per cent, or the lowest since Christmas 2000.

The British Chambers of Commerce said signs of a weak high street should "knock any talk of interest rates rising on the head". Ian Fletcher, its chief economist, said: "Further rate cuts may be needed in the months ahead."

Economists in the City, who had predicted a 0.7 per cent surge in sales, cast doubt on the reliability of the figures.

They pointed out that December was often unexpectedly weak and warned the fall might soon be revised away.

Ciaran Barr, the chief UK economist at Deutsche Bank, said the Bank of England would wait to see figures for the whole November to January period before concluding retail spending had started to slow.

"Should sales rebound in January, then the period will still have been strong with annual growth in excess of 6 per cent," he said.

Some said that, taken at face value, they could prevent a hike in interest rates or even justify a further cut next month.

"These figures are a real shock," said Philip Shaw, UK economist at Investec. "In the short term we cannot completely rule out another cut in interest rates."

The report was the latest piece of evidence to cast doubt on the likelihood of an imminent rise in interest rates, following a slump in manufacturing, a rise in unemployment and a fall in inflation to a 42-year low.

The weak figure could also push growth in the last quarter of 2001 into negative territory for the first time in more than nine years. The first estimate is published next week.

"The risk is that GDP may have contracted, which is unbelievable given how strong the consumer side [of the economy] has been," said John Butler at HSBC.

Statisticians at the government department that produced the report tried to steer analysts away from branding December as a weak month.

Pam Davies, an analyst at National Statistics, said: "The fall in December is due to strong November data rather than to weak December data."

Recent evidence had pointed to a strong month, particularly the last two weeks straddling Christmas and into the new year.

A survey from the CBI, the employers' group, pointed to the best Christmas for 14 years while the British Retail Consortium said sales rose 8.1 per cent ­ the best performance for five years.

Some individual retailers have also reported strong sales rises. Electronics Boutique, the computer games specialists, topped the table with a 47 per cent rise in annual growth while Arcadia, Matalan, Next and Marks & Spencer all saw growth of about 9 per cent.

National Statistics said the value of sales in December, at £28.8bn, was 6.7 per cent up on the year earlier, the same as in November and higher than October's total.

Measured over the year, 2001 saw growth in volumes of 5.9 per cent compared with 4.6 per cent in the previous year and the highest since 1988.

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