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Thursday, 17 January, 2002, 15:32 GMT
Shock fall in UK retail sales
Shoppers in Oxford Street
Shoppers were not as enthusiastic last month as had been expected
A surprise fall in UK retail sales during December could lead to yet further cuts in interest rates, analysts have said.

Our economy is by no means out of the woods

Ian Fletcher, British Chambers of Commerce
Volumes of High Street sales were 0.3% lower last month than in November, the first monthly sales fall since April 2000, according to the latest numbers from the Office for National Statistics.

On an annual basis, December volumes were 5.7% up, against 7% growth seen in November.

The data surprised City analysts who, following encouraging trading reports from individual retailers, had expected stronger data.

"These figures are a real shock," said Philip Shaw economist at Investec Bank.

"Survey evidence had pointed to a big rise in sales in December so this fall is a major surprise."

Strong November

Sales volumes for 2001 as a whole grew by 5.9%, against 4.6% the previous year, which was the strongest annual sales rise for 13 years.

The ONS said the fall in volumes last month reflected the strength of figures for November.

This could lead to a complete reappraisal of the strength of consumer activity, and in the short term we cannot completely rule out another cut in interest rates

Philip Shaw, Investec Bank
And despite December's slowdown, the retail sector is set to continue growing strongly, ONS statisticians said.

But the figures rattled economists who had been forecasting a monthly rise of about 0.7%.

"It is always very dangerous to take one month's figures in isolation but December is a very important month because many retailers are reliant on trading over Christmas," said Jeremy Batstone, head of research at NatWest Stockbrokers.

"Were it proved to be the case, and I must say I have some difficulty with it, then it would certainly point to a slightly weaker than expected performance from the retail sector.

"But I just can't believe it."

More rate cuts?

The weaker than expected sales figures will ease fears that the Bank of England, which cut interest rates last year to their lowest level since the 1960s, could be preparing to raise them again.

Speculation has risen in recent weeks that the Bank might increase rates to head off a consumer boom.

Shoppers leaving a Marks & Spencer store
Marks & Spencer enjoyed strong sales over the festive period
But some analysts now say the next rate movement could be down.

"This could lead to a complete reappraisal of the strength of consumer activity, and in the short term we cannot completely rule out another cut in interest rates," Investec's Philip Shaw said.

And the British Chamber of Commerce (BCC) also said further rate cuts could be on the cards.

"Our economy is by no means out of the woods," said the BCC's chief economist Ian Fletcher.

"Further interest rate cuts may be needed in the months ahead to ensure that demand at home suitably compensates for the recession in industry caused by conditions abroad."

Christmas sales

The sales figures took many people by surprise as, over the past couple of weeks, a slew of trading statements showed that many retailers had enjoyed bumper festive sales.

On Wednesday Marks & Spencer said sales were 8.3% higher over Christmas compared with the same period a year before, and other retailers including Next and Arcadia - owner of Top Shop and Burtons - have also reported buoyant trading.

Chains reporting weaker growth have included Dixons, which said a drop in sales of mobile phones and PCs offset strong sales of other electrical goods such as DVD players.

Boots on Thursday said its Christmas trading figures were unsatisfactory.

The BBC's Robert Parsons
"It's the first monthly decline since April 2000"
The BBC's Rory Cellan Jones
"Right now shoppers are thin on the ground"
See also:

17 Jan 02 | Business
Bhs to treble profits
17 Jan 02 | Business
Boots says sales 'not satisfactory'
13 Dec 01 | Business
Sales growth jumps to 13-year high
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