Retail sales keep rising

DIANE COYLE

Economics Correspondent

Retail sales maintained their pre-Christmas growth into January, confirming the buoyancy of consumer spending, according to a Confederation of British Industry survey published today.

The unexpected growth in sales adds weight to recent evidence that consumer spending will be the engine of economic growth this year, while manufacturing output remains weak.

"A lot of forecasters have talked about this being a year of two halves, with growth rising in the second part of the year. What we actually have is an economy of two halves," said Robert Barrie, UK economist at BZW.

The fortunes of the consumer sector and industry have diverged steadily during the past few months. Recent figures showed that output in manufacturing fell sharply in December to a level slightly lower than a year earlier, while growth of exports has virtually halted.

Mr Barrie predicted that manufacturing industry might struggle to expand much this year, due to the combination of excess stock levels and a slowdown in Britain's main export markets.

Yet indicators of consumer spending such as high street sales and cash in circulation have picked up. Even the moribund housing market has shown signs of life.

The CBI reported that retail sales rose on an annual basis for the fourth successive month in January, and were above average for the time of year for the second month running. This followed a year of uneven growth in sales volumes.

The 31 per cent balance of retailers reporting higher versus lower sales was the same as in December and the highest for two years.

Motor traders' annual sales volumes rose for the first time since August. The increase confounded their earlier cautious expectations of a decline in sales this month, and respondents said they expect a stronger rise in February.

Retailers expect the upward trend to continue at a similar rate.