Upbeat retail sales raise high street's hopes for Christmas

Rising sales are boosting retailers' hopes for a strong Christmas on the high street, but the longer-term outlook remains fragile and unpredictable.

Britain's retail climate improved for a fifth consecutive month in November, with 55 per cent of retailers reporting improvements in the first two weeks of the month, compared with just 13 per cent seeing falls, the closely watched Confederation of British Industry (CBI) Distributive Trades survey revealed yesterday.

An overall balance of plus 43 per cent outstrips the plus 36 per cent seen in October – when consumer concerns about the Government's comprehensive spending review weighed on shopping patterns – and is close to the six-year high of plus 49 per cent in September.

Retailers are also increasingly optimistic about the crucial Christmas period, with a balance of plus 45 per cent expecting strong sales growth through December and a net 11 per cent expecting the overall business situation to improve over the coming three months.

Recent sales figures from John Lewis help make the optimists' case. Last week's sales were 12 per cent up on the previous year and a whopping 29 per cent up on 2008. So far, this week has followed the same trend, according to Nat Wakely, the John Lewis director of selling operations. "We have seen another double-digit increase of 12 per cent for the first half of this week, spread evenly across home, fashion and electrical merchandise," he said yesterday.

But even with the month-on-month gains reported by the CBI, a net 6 per cent of retailers are still reporting November sales below average for the time of year. And the longer term outlook is muted. "Looking into the new year, retail sales growth may lose some of its sparkle, as consumers rein in spending after Christmas," Ian McCafferty, the CBI's chief economic adviser, said. "Confidence remains fragile, VAT is rising in January, and a combination of weak wage growth and high inflation is eating into household incomes."

Financial results published yesterday by Dixons Retail, which owns Currys and PC World, bear out the mixed analysis. Dixons narrowed its losses from £17.6m to £7.9m in the first half of the year. But like-for-like sales gains are slowing and, while hopes for the festive period are pinned on robust sales of iPads and 3D televisions, Dixons is expecting business to be "extremely competitive". John Browett, the chief executive, said: "We're not expecting an easy Christmas."

Economists echoed the note of caution yesterday, casting doubt on how far the upbeat CBI survey might be reflected in hard sales figures, and ascribing some of the recent improvements to the rush before the VAT rise in the new year.

Howard Archer, the chief economist at IHS Global Insight, laid out a long list of pressures on consumer spending, including low confidence, the fiscal squeeze, high unemployment, the slowing housing market, and rising food and energy prices.

"Retailers will be hoping that consumers decide to splash out and have a good Christmas, despite significant economic worries," Mr Archer said. "Further out, the concern remains that consumers will rein in their spending in the face of serious headwinds."

Earlier this month, official statistics showed food sales down by a record 2.4 per cent in the three months to October as prices shot up by 4 per cent. And clothing group Next warned that prices could rise by 8 per cent next year on the rocketing cost of cotton.