High street rebound fails to lift gloom

The High street has suffered its worst Christmas and new year trading period for a decade despite a rebound in sales last month, official figures showed yesterday.

The High street has suffered its worst Christmas and new year trading period for a decade despite a rebound in sales last month, official figures showed yesterday.

The volume of sales in the key November to January quarter posted no growth compared with the previous three months, the worst performance since the 1994-95 festive period, the Office for National Statistics said.

The figures were published a day after the Bank of England said that weak consumer spending was the largest downside risk to its forecast of above-target inflation.

Sales rose by 0.9 per cent between December and January after a fall of 1.1 per cent the previous month, with most sectors sharing in the rebound.

Nick Palmer, an ONS statistician, said: "Although sales recovered in January after a weak December, the relatively robust growth that has been in evidence since mid-2003 appears to have come to a halt."

January's rebound was led by food stores, with a 1.5 per cent rise in sales, rather than the sectors that traditionally enjoy a boost from new year sales. The 1.5 per cent rise in food store sales was the largest since May 2001.In contrast, the rest of the high street grew by 0.5 per cent with the "other stores" category - which includes toys, cameras, sports, mobile phone, computer and book shops - slumping by 0.9 per cent.

Retailers appeared to have sacrificed profits to win sales as the ONS said prices fell by 0.7 per cent in January, compared with the 0.5 per cent fall in 2004.

Although there was little reaction on the financial markets, City economists agreed the figures showed that retail spending was looking less robust.

They acknowledged, however, that Mervyn King, the Bank's Governor, had moved to downplay the significance of today's figures, warning that the true message from the Christmas period would not be known until Easter.

Despite that, Alan Castle, a UK economist at Lehman Brothers, said much of the uncertainty over the festive trading period was "dissipated" by yesterday's figures. "One of the key downside risks identified in the [inflation] report is showing signs of materialising," he said. "This should keep the Bank on hold for the foreseeable future."

But Malcolm Barr, JP Morgan's UK economist who raised his forecast for the peak in rates to 5 per cent after the inflation report, said retail sales made up just one-fifth of total expenditure. He said: "For the Monetary Policy Committee to be dissuaded from raising rates, retail sales volumes need to move into significant outright contraction. We doubt that will occur, hence the forecast for another increase in May remains."