Retailers head for Christmas on a year's high

Retailers received an early Christmas present last month as shoppers loaded up with the largest volume of purchases so far this year, official figures showed yesterday.

High street shops reported a 0.9 per cent rebound in sales in October after September's 0.4 per cent fall. It was the largest monthly rise since November last year, the Office for National Statistics said. The rebound was led by department stores and clothes shops - both traditionally big winners during the festive season - that saw rises of 2.5 and 1.9 per cent respectively.

However, the figures appeared to show that shoppers remained highly price-sensitive, which may reduce any concerns at the Bank of England over an inflationary spending boom.

Retailers managed to raise prices for the second month in a row for the first time since 2001, but by just 0.1 per cent compared with the 0.7 per cent price rise in September.

However, the pound rebounded yesterday as traders focused on the strong volume numbers as a sign that interest rates may have to rise again. "The UK consumer remains in a healthy position and willing to spend," said Jonathan Said, the senior economist at City analysts CEBR.

Analysts said that upbeat figures on the housing market would support consumer confidence going into the key Christmas and new year shopping period. George Johns, the UK economist at Barclays Capital, said: "Looking ahead, leading indicators of sales growth such as the level of mortgage approvals suggest the risk to annual sales volume growth lie to the upside."

However, he said 2007 could be a "harder year" for retailers if stock markets and house prices slowed and immigration flows were curbed.

Howard Archer, the chief UK economist at Global Insight, said higher utility bills, a rising tax burden and debt levels and concerns over pensions would slow spending. "This should help to keep a lid on inflation and interest rates," he said.

The ONS said all sectors enjoyed growth except food stores, which were the only loser in October. A 2.2 per cent average price rise, the largest for five years, resulted in a 0.2 per cent fall in sales.

The Bank of England raised borrowing costs to 5 per cent last week, but signalled in its quarterly Inflation Report on Wednesday it was in no hurry to raise interest rates again.