Plea to peg rates after high street spending stalls

THE CONFEDERATION of British Industry yesterday urged the Bank of England to hold off raising interest rates as its latest survey of retailers showed that high street spending was far more depressed in August than had been expected a month earlier.

Retailers reported the smallest annual rise in spending volume for 18 months, with City analysts forecasting that next week's official retail sales data would show a fall since the previous month. The CBI said tax increases appeared to be hitting high street trade.

'It looks as though August was a terrible month for retailers,' said Don Smith, economist at HSBC Greenwell. Simon Briscoe, of Warburg Securities, said the reported weakness of spending in August was extraordinary and pointed to a slackening in the pace of recovery.

The December short-sterling futures contract leapt by almost a fifth of a percentage point, reflecting receding fears of an early base rate increase. Separate figures on the balance of trade showed that a sharp rise in export volumes and small decline in imports in June had narrowed Britain's trade deficit to pounds 690m from pounds 1bn in May.

Howard Davies, the CBI's director-general, said in a speech to Scottish businessmen last night that the distributive trades survey was no cause for alarm. He added: 'I hope the main effect is to persuade Eddie George that he can hold off his interest rate rise for some time yet.'

Mr Davies said: 'We needed a recovery based more on production, investment and exports than on consumption. And that is what we now seem to be getting.'

The survey, covering 15,000 businesses, showed that a balance of only 2 per cent of retailers had seen sales rise in the year to August, while price increases were much lower than expected.

For the second month retailers reported lower employment and said they expected it to continue falling. Nigel Whittaker, chairman of the CBI's distributive trades panel, said: 'Retailers have to look after their margins when sales are disappointing.'

Along with the evidence of muted consumer spending came the publication of trade statistics which showed export volumes had jumped 3.9 per cent in June while imports fell 0.4 per cent.

Part of the pounds 355m improvement in the trade balance during the month was due to a bigger surplus on erratic items such as aircraft and gemstones. Higher North Sea production added pounds 93m to the oil surplus.

Excluding these categories, the trade gap narrowed to pounds 1.3bn. Michael Saunders, an economist at Salomon Brothers, said April's tax increases were preventing import demand from accelerating.