High street slowdown hints at peak in rates

Retail sales fell unexpectedly in October for the first time in three months while mortgage lending slowed, raising expectations that interest rates have peaked.

Retail sales fell unexpectedly in October for the first time in three months while mortgage lending slowed, raising expectations that interest rates have peaked.

Official figures released yesterday showed that retail sales fell 0.4 per cent in October from the previous month, with declines in all areas except clothing, following an upwardly revised increase of 1.1 per cent in September. Analysts had expected sales to be flat. The annual growth rate fell to 6 per cent from 7 per cent. John Butler, at HSBC, said: "It suggests that the crucial Christmas trading period of retailers has begun subdued."

Only clothing and footwear stores saw any growth in sales volumes, of 0.4 per cent on the month. Household goods sales suffered a 0.7 per cent fall, perhaps reflecting the slowdown in the housing market. Retail sales were up 1.2 per cent in the three months to October from the previous quarter, but underlying sales growth was "distinctly lower" than it was in the first half of this year, the Office for National Statistics said.

The Bank of England has cooled the housing market by raising interest rates five times in the past year to 4.75 per cent, and there is a growing perception that rates may have peaked.

Separate reports yesterday showed that mortgage lending continues to slow, and Nationwide predicted that house prices may stop rising next year. The building society forecast that house price growth will ease to 0-5 per cent, from 12 per cent this year. Last week, Mervyn King, the Governor of the Bank of England, predicted for the first time that house prices could fall "modestly" for a period.

Figures from the British Bankers' Association showed that underlying net mortgage lending rose by £4.4bn in October - about the same as in September - but well below the levels of earlier this year.

The Council of Mortgage Lenders said gross mortgage lending totalled £23.3bn last month, down 8 per cent from September and the lowest level since February. Loans for house purchases, at £10.3bn, were also the lowest since February. Howard Archer, at Global Insight, said: "The data is clearly supportive of the view that interest rates have peaked."

The buoyant mortgage market earlier this year catapulted Nationwide's pre-tax profits to a record £245bn in its first half. Net mortgage lending of £7.4bn gave it a market share of 13.7 per cent. Nationwide was upbeat about the second half despite the slowdown in the housing market.