High street fared better in October but car sales suffered slowdown

Retail sales picked up in October, according to figures released yesterday which helped vindicate the Bank's decision to lift rates. But the booming car market slowed down after its strong performance over the summer. Michael Harrison and Diane Coyle examine the latest figures.

The Confederaion of British Industry reported that sales volumes reached their strongest level for a year in October after having been held back the previous month by the "Diana factor".

According to the organisation's latest distributive trades survey the level of activity on the high street last month was well above average for the time of year with sales increasing at their quickest rate since November, 1996.

The CBI said the underlying trend suggested that a slowdown in sales growth since midsummer has levelled off. Retailers also became more optimistic about sales prospects for the next few months, with the volume of business in October surpassing their expectations.

Alastair Eperon, chairman of the CBI's survey panel, said: "This survey paints a more promising picture for retailers, as overall sales volumes in October increased at their fastest rate for almost a year."

The balance of retailers reporting an increase rather than a decrease in sales was 38 per cent compared with 26 per cent in September.

All retail sectors apart from footwear and leather reported October sales higher than a year earlier. Sales of both furniture and carpets and clothing rebounded strongly after a dismal September. Off-licences, booksellers and chemists also had a much better month.

"Overall the survey indicates a bounce back in spending in October, but not at a rate that will allow retailers to push up prices," concluded Geoffrey Dicks, an economist at NatWest Markets.

Michael Saunders of Salomon Brothers said the evidence that consumer spending had not yet slowed to a sustainable pace supported the case for a base rates rise.

Simon Briscoe of Nikko Europe said that despite the modets nature of the pick-up the markets were likely to remain nervous about future trends, particularly the threat of a spending boom over the Christmas period.

Christmas shopping lifts consumer spending in November and December and this year many analysts are predicting that High Street sales could be stronger than ever. They said that was particularly because of a boost from the windfall gains made by millions of people from the stockmarket flotations that followed the conversion of several leading building societies into banks earlier this year. Analysts also said that retail sales were being buoyed by increases in incomes.

New car sales figures for October were more muted showing a rise of only 1.3 per cent to 156,706 on the same month last year. The increase compares with record sales in August and September and an overall rise of 6.7 per cent in the new car market in the first 10 months of the year.

"These figures are clear evidence of a slowdown in the car market following the pattern of other retail sectors," said Ernie Thompson, chief executive of the Society of Motor Manufacturters and Traders.

Alan Pulham, director of the Retail Motor Industry Federations, dealers association, said: "It is clear that demand is slowing in line with the general economy but the figures are still a cause for gratification."

Imports took 68 per cent of the market while the share of sales accounted for by private motorists as opposed to fleet buyers was 44 per cent.

Ford remained the market leader although its share slipped to 16.7 per cent with Vauxhall taking 14.7 per cent of sales and Rover just uner 10 per cent.

The CBI's survey followed a report earlier in the week showing an increase in business activity in all the service industries. The Chartered Institute of Purchasing and Supply said there were signs of skill shortages and rising pay.