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Thursday, 3 January, 2002, 11:39 GMT
'Bumpier ride' ahead for UK economy
Oxford Street shoppers
Retail spending stayed strong over Christmas
The British economy faces a "bumpier ride" in 2002 than last year, the deputy governor of the Bank of England Mervyn King said.

Mr King highlighted the problems of Britain's two-speed economy, warning that imbalances such as those between the buoyant retail sector and recession-hit manufacturers could lead to problems.

"At some point (these imbalances) will have to come to an end, and the bigger they are the bigger the risk that they will occur abruptly," Mr King said in an interview with the Financial Times.

The warning came shortly before an authoritative retail survey painted a mixed picture of trends on the High Street.

'Bumper start'

Retailers enjoyed a "bumper start" to Christmas and the fastest December sales growth since 1987, the Confederation of British Industry (CBI) said in its monthly retail report.

Nonetheless, underlying trends showed sales remained "well below the summer peak".

Sales volumes "are expected to increase at a far slower year-on-year rate in January" but to remain above the seasonal average.

Meanwhile, department store chain John Lewis said shoppers' ethusiasm showed no sign of slackening after Christmas.

Sales in the week to 29 December were up 17.3% on last year as clearance sales got off to a "solid start".

Better than rivals

Mr King said Britain's economic performance was "remarkably good" compared to other members of the Group of Seven advanced industrial nations.

But economic imbalances meant success in shielding Britain from the worst effects of the global downturn may not be repeated in this year, he reportedly said.

The risk of a slowdown in the High Street sales which have been fuelling the economy cannot be ruled out.

"Because consumer demand has been so strong for so long, there is a risk that at some point it will fall away very sharply," Mr King said.

Cautious views

Mr King reportedly said the Bank of England believes growth will be slower in the first half of 2002, but pick up later in the year.

His warning comes on the heels of a prediction from a group of leading economists that High Street spending could slow as consumers worried about their jobs and struggle to pay off credit card bills.

Cambridge Econometrics cautioned that "during 2002 households are expected to cut back spending as unemployment edges up".

Meanwhile manufacturing output suffered its sharpest monthly decline for three years in December, the Chartered Institute of Purchasing and Supply (CIPS) said.

Bank of England chiefs will next week hold their first interest rate meeting of 2002.

Since last February, Bank has cut rates seven times to boost the economy and many analysts think further rate reductions are unlikely.

The CBI's monthly Distributive Trades survey is based on replies from 276 firms responsible for 40% of employment in the sector.

See also:

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11 Dec 01 | Business
UK inflation falls to record low
10 Dec 01 | Business
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30 Nov 01 | Business
UK consumers more optimistic
29 Nov 01 | Business
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