High Street sales bounce back

RETAIL sales bounced back spectacularly in November as an intense price war drew shoppers back to the High Street. The Office for National Statistics said sales rose 0.6% in November. Economists had expected a rise of just 0.1%.

The news will be welcome relief for shareholders in retail groups, who had been warned consumers would tighten their belts before Christmas as the reality of the UK's growing debt problem sinks in. Borrowers now owe more than £1 trillion.

Several High Street store chains have begun sales early this year. The likes of Marks & Spencer and Debenhams have offered special discount days, with 10% or 20% off everything.

The battle appears to have attracted shoppers. November's 0.6% sales rise follows a 0.5% fall in October. Annual sales growth is now running at 6.1%.

However, the boom has come at a cost - the retail sales deflator index, a measure of prices in shops, slipped to -1.5% on the year in November from -1.4% in October.

Household goods, plus clothing and footwear saw particularly large price falls in November, the ONS said. These sectors, plus food stores, powered the sales increases.

The ONS also said that internet retailers showed strong growth on a year ago while mail order sales were down.

Within other non-food stores, the only category that did not show strength in November, some toy retailers and sport shops reported sales were down on a year ago.

Earlier this week, JP Morgan cut its profit forecasts for Boots, M&S and Dixons amid signs that higher interest rates were leaving shoppers with less spare cash. Shares in the retail sector had already under-performed the rest of the UK market by 7.5 per cent since the start of July, it added.

While the strength of sales will be welcomed by retailers, it could spell bad news for borrowers. A booming Christmas will put pressure on the Bank of England to order an additional increase in its base rate. Economists had been speculating that rates might have peaked at 4.75% and could fall in the new year.

All eyes will be on December sales figures, which will be released a week after the Monetary Policy Committee's next meeting on Thursday, 6 January.

'Today's data provides us with further comfort in our suspicion that the interest-rate cycle has yet to peak,' said Simon Rubinsohn, chief economist at broker Gerrard. 'Spending data in the approach to Christmas needs to be treated with some caution and that it can be quite volatile on a month-by-month basis.

'Our judgement is that it will continue to prove relatively resilient into the early part of the new year.'