Strong high street sales dispel bleak forecasts

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HIGH STREET sales last month were far stronger than expected, according to official figures released yesterday, suggesting that the economic outlook is not as gloomy as some City experts had feared.

A separate Confederation of British Industry survey of the manufacturing sector also pointed to recovering confidence, fanning speculation that the Monetary Policy Committee might not cut interest rates again when it meets in January.

Neil Parker, Treasury economist at Royal Bank of Scotland, said: "This all backs up our view that the Bank isn't going to do anything in January and will probably cut by 25 basis points [0.25 per cent] in February."

The December CBI industrial trends survey found that manufacturers were less gloomy about the outlook for output, and that there had been some stabilisation in order book levels.

Around 35 per cent of respondents believed output would decline over the next four months, while 22 per cent expected it to rise. This gives a balance of minus 13 per cent, up from November's minus 27 per cent.

A balance of minus 48 per cent of manufacturers said order books were below normal, up from minus 51 per cent in November.

Sudhir Junankar, an associate director of economic analysis at the Office for National Statistics (ONS), said: "There isn't a great deal of festive cheer in this survey for UK manufacturers.

"There are some signs of a slight easing of concerns, but these small improvements should not be overstated. Our next survey in January should give a clearer idea of whether this hint of optimism is justified."

Jonathan Loynes at HSBC Securities said: "The survey brought the first signs of light at the end of the tunnel for manufacturers. The improvement in optimism presumably reflects a belief that the aggressive cuts in interest rates will save industry from recession."

There was more positive news from the ONS, which said that high street sales in November were better than expectations.

City analysts had been bracing themselves for a disappointing set of official sales figures after surveys from both the British Retail Consortium and the CBI pointed to an extremely weak November.

However, official figures show the volume of retail sales actually increased by 0.8 per cent over the month, compared to expectations of a 0.3 per cent decline.

In the three months to November, the value of retail sales was three per cent higher than during the corresponding period last year.

The ONS calculates that Britain's high-street retailers took pounds 16,400m in the four weeks from 1 to 28 November.

Analysts said the strong sales figures showed that heavy price discounting was tempting consumers into the shops, but warned that December could prove disappointing if the discounts came to an end.

According to Mr Loynes, the discrepancies between the survey predictions and the official figures were "a bit of a puzzle".

He said: "Surveys ask different things, use different samples and can be conducted over different time periods. Usually, they are a pretty good indicator of what's going to happen to official figures, but on occasions they get it wrong."