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Retail sales growth slowest for two years

Philip Thornton,Economics Correspondent
Friday 25 October 2002 00:00 BST
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Retail sales slowed last month but failed to show the abrupt fall in spending that would have forced the Bank of England to cut interest rates, analysts said yesterday.

The volume of high street sales rose 0.4 per cent in September, down from 0.7 per cent in August and a recent peak of 1.7 per cent, the Office for National Statistics said.

This meant retail sales rose by 0.7 per cent over the latest quarter, the slowest three-month increase for more than two years.

The figures were in line with the average forecast among City economists, who said today's first estimate of GDP growth in the third quarter could now be the decisive factor in next month's decision on interest rates.

The ONS said that, on an annual basis, the high street was growing at 4.6 per cent a year, the slowest since the winter of 2000.

But there was a mixed picture across the high street, with department stores sales growing at their fastest rate since 1992, echoing recent upbeat statements from retail behemoths such as Marks & Spencer and Debenhams.

Analysts said areas where retailers had raised prices recently had suffered the worst. Sales of food and household goods were stagnant while mail order items and clothing and footwear suffered a fall.

In the City, Ross Walker, at Royal Bank of Scotland, said the figures provided a "clear signal that consumer spending remains robust". "The chances of a rate cut in November have receded slightly," he said.

Another economist noted that the continued resilience of consumer spending might be the reason why one mystery member of the Monetary Policy Committee had decided against calling for a rate cut two weeks ago.

However, David Page, UK economist at Investec, said the figures showed high street spending had been on a steady downward path all year.

He said that with manufacturing heading back towards recession the Bank would need to prop up consumer spending to avert the threat of deflation.

"We are looking for the Bank to reduce rates one more time, probably as soon as November," Mr Page said.

Analysts agreed the lack of clear direction from yesterday's number would sharpen the focus on the first estimate of third-quarter GDP growth, which the ONS published today.

The City expects growth of 0.6 per cent, the same as the second quarter, taking the annual rate to 1.6 per cent. "GDP is the key number but may be equally inconclusive," warned Neville Hill at CSFB.

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