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Thursday, 18 November, 1999, 16:14 GMT
Rate fears as sales soar

High street sales rose faster than expected last month as shoppers snapped up autumn bargains.

Volume was 0.5% higher than in September - more than double the 0.2% rise expected by most analysts.

During the 12 months to October, sales volumes were up 4.7%, according to the figures released by the Office for National Statistics (ONS).

The rise during the year was also much higher than the predicted increase of 4.1%.

Rate worries

The figures are likely to provoke worries that consumer spending is soaring.

The ONS said the latest figures showed the trend in sales had accelerated. This was one of the factors mentioned by the Bank of England when it raised interest rates twice in the last three months to the current level of 5.5%.

The ONS, said the 4.7% year-on-year increase in October retail sales represents the strongest growth rate since January 1998, although it warned that monthly figures could be erratic.

It said the latest figures confirm that the underlying growth rate has picked up in recent months, particularly when compared with last year when growth was "rather subdued".

A spokesman said the Rugby World Cup may have boosted sales and at least one retailer reported an increase in sales of wine ahead of the Millennium.

Sales effect

While the volume of sales has been rising, the value of goods sold has not been increasing as fast.

The value of sales over the year rose by 3.5% to an average of 3.85bn a week.

The difference between the rise in the volume and value of sales indicates that retailers have been cutting prices to boost the number of products sold, putting a squeeze on their profit margins.

David Smith, economist at stockbrokers Williams de Broe, said: "This seems to me to be horrendous news for retailers."

This is borne out by more bad news from high street retailers.

Clothing retailer Arcadia, which owns shops such as Dorothy Perkins and Top Shop, has warned that the effects of intense competition mean that its first-half profits may fall below expectations.

The firm said volumes had only been maintained by heavy price discounting and promotions which were driving margins lower.

Also, struggling retail giant Storehouse says it plans to split its Bhs and Mothercare chains into separate companies.

Both chains have been hit by poor sales performances.

The same scenario is faced by most of the UK's clothing shops, including market leader Marks & Spencer.

Clothing retailers in general say they are suffering from sluggish demand and price deflation in an increasingly competitive environment. Only those with the strongest brands or value-for-money seem to be thriving.

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See also:
09 Nov 99 |  The Economy
Shop sales pick up
16 Nov 99 |  The Economy
Row over the national shopping basket
18 Nov 99 |  Business
Storehouse splits up Mothercare and Bhs

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