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Wednesday, 5 September, 2001, 17:56 GMT 18:56 UK
Shoppers maintain spending spree
Book shop
Book stores reported strong sales last month
Shoppers have again confounded pessimists by keeping up their buying spree, helping retail sales grow at their fastest rate for almost five years.

More than two thirds of UK retailers said sales volumes were higher last month than a year before, compared with 19% reporting a fall, a survey by the Confederation of British Industry (CBI) has revealed.

This rise, boosted by brisk trade in groceries and bookstores, represented the strongest growth in High Street sales since October 1996, the CBI said.

Coupled with continued reports of a buoyant housing market, the surge indicates that UK consumer spending has remained resilient to the global economic slowdown, defying widespread predictions of stagnation.

Rate cut hopes

Signs of ongoing UK economic strength have increased the chances that the Bank of England's monetary policy committee, which on Wednesday opened its monthly interest rate meeting, will maintain rates at 5.0%.

The committee, which has reduced rates four times so far this year, will announce its decision on Thursday.

While many observers have pleaded for further cuts, pointing to the recession in the UK manufacturing sector, economists expect the MPC to bow to the risk of higher inflation posed by strong consumer demand.

"Today's figures make it unlikely the Bank will cut rates again at least until the MPC receives convincing evidence that their expectation of a slowdown in consumer demand is actually starting to emerge," said George Buckley of Deutsche Bank.

Surprise price rises

The CBI survey stoked inflationary concerns by highlighting an "unexpected" increase in retail prices.

But the confederation, which has been among organisations asking for interest rate cuts, forecast that stores would trim price rises and job creation plans in coming months.

"Several indicators in today's survey suggest that the robust growth will not extend into September," said Alastair Eperon, chairman of the CBI's distributive trades panel.

"Retailers confidence about the business situation over the next six months has dropped back from the levels reported in February and May and job increases are expected to moderate over the coming months."

Dixons disappoints

Mr Eperon's warning came minutes after electrical retailer Dixons Group revealed a 1% drop in like-for-like sales since May.

While reporting brisk trade in large screen televisions, the High Street giant admitted weak sales of mobile phones and personal computers.

Company chairman Sir Stanley Kalms said it was as yet too early to decide whether the downward trend would continue for the rest of the year.

"Whilst the economic outlook is uncertain, a series of significant new products are in the pipeline," Sir Stanley said.

But the statement failed to impress the City, where Dixons shares closed down 17.25p, or 7.8%, at 202.75p on Wednesday.

See also:

16 Aug 01 | Business
Retail sales stay strong
15 Aug 01 | Business
Bank split over rate cut
06 Aug 01 | Business
Heatwave fuels UK shopping spree
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