Retailers urge Bank to cut rates as spending slows

Britain's retail giants last night urged the Bank of England to cut interest rates later today, warning that consumer spending was slowing sharply.

The British Retail Consortium said the Christmas trading session was the worst December for the high street in four years. Sales volumes rose by 4.1 per cent last month compared with a year ago. This was half the rate in December 2001 and the worst Christmas since 1998, when the world was reeling from a global financial crisis.

Bill Moyes, the director-general of the BRC, said the sales figures were "disappointing". "If the Bank wants to see consumer spending continuing to grow ... then they must signal this with a cut to interest rates."

The Bank's Monetary Policy Committee (MPC) finishes its two-day meeting at noon today, when it is expected to leave rates on hold at their 40-year low of 4.0 per cent for the 14th month in a row.

Although the BRC survey is the latest in a raft of anecdotal evidence pointing to a consumer slowdown, analysts believe the MPC will not act until it sees firm proof.

Last week the Confederation of British Industry said its survey, which only run to 18 December, showed sales fell in December for the first time in a decade.

Individual retailers have warned that sales were only modestly ahead of 2001 while the number of shoppers on Christmas Eve was 11 per cent down on a year ago.

John Butler, UK economist at HSBC, said he had a "strong sense of déjà vu" from January 2001 when a fall in retail sales triggered fears of a consumer panic. "The Bank will say that retail sales are extremely volatile," he said. "The lesson is not to write the consumer off when the economic fundamentals are strong."

Households have benefited from low borrowing rates and the booming housing market, which has allowed them to borrow against the rising value of their home.

Ciaran Barr, chief UK economist at Deutsche Bank, said separate figures from the BRC today would show that sales growth had been won at the expense of low prices and profits.

"This is not a consumer collapse," he said. "But it is almost as if the consumers have a fixed pot of money and the question is how they divide it up."

Analysts believe the Bank will want to see the details of retail sales in January, in the light of anecdotal evidence that shoppers returned to the high street in search of bargains in the sales. Amanda Aldridge, head of retail at the accountants KPMG, said: "The sales have got off to a good start. Reports of a disastrous Christmas for the retail sector are grossly exaggerated."