View from City Road: Slip in retail sales catches markets out

The markets should not have been as surprised by December's fall in retail sales as they were. The 0.2 per cent drop - giving a 4 per cent rise over the year - was precisely in line with Tuesday's distributive trades survey from the Confederation of British Industry, although you would not have known that from the CBI's own comments.

As in the previous year, the markets appear to have been misled by the enthusiastic effusions of chambers of commerce and department store public relations apparatchiks. But it is hardly surprising that stores which enjoy good trading are more likely to shout about it than those which do not.

In particular, single outlets and small local chains appeared to have lost market share to some of the larger and more vocal multiples.

Another reason the official figures showed a fall was that, for the third year in a row, December accounted for an unusually small share of trading for the year as a whole. The Central Statistical Office appears to have overcompensated for the normal rise in trade at Christmas time, depressing the seasonally adjusted figures.

The figures may have come as a surprise, but their importance should not be overestimated. December sales fell unexpectedly a year ago as well, only to rebound in January. The same may happen now.

December's disappointing number may increase the political pressure for another cut in interest rates but it does not in itself provide an economic justification. That justification comes from the need to offset the impact of the Lamont/Clarke tax increases that will take effect later in the spring.