Loan rate may be cut again

Interest rates could be on the way down again after a shock fall in High Street spending.

Official figures revealed today that retail sales volumes over the key Christmas trading period were 0.3 per cent lower than the previous month. The fall was the first month-on-month decline since April 2000 and baffled City economists, who had pencilled in a 0.7 per cent jump.

"These figures are a real shock," said Philip Shaw, economist at Investec. "Survey evidence had pointed to a big rise in sales in December, so this fall is a major surprise.

"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."

However, Richard Hyman, chairman at retail research consultancy Verdict, said: "There has been massive, massive over-reaction. Christmas 2001 was fantastic for retailers - it was miles better than anyone had any right to expect."

Today's news flies in the face of upbeat trading statements from a string of high street retailers including Marks & Spencer, Next, Selfridges and Sainsbury's. National Statistics, which compiles the data, said the fall was due to a moderation in spending from November's exceptionally strong levels, rather than a weak December performance.

A sharp drop in sales of clothes and shoes was the main culprit, although a weaker performance was seen across the board, with the exception of household goods which continued to see strong sales growth. Sir Eddie George, Governor of the Bank of England, had warned that rates would have to rise if the high street spending boom showed no sign of petering out.

Today's numbers suggest that rising unemployment and mounting household debt may finally be persuading consumers to rein in their spending.

But Ian McCafferty, chief economist at the CBI, said: "Month-to-month figures can be volatile but the underlying trend and statements from individual companies confirm the strength of retail sales.

"However, with other parts of the economy still weak and little sign of a pick-up in the rest of the world, the figures have little implication for the immediate outlook of interest rates."

Meanwhile, for the second year running, London is Britain's most expensive region to live in, with the North-East and Wales the cheapest. This month's Office for National Statistics Economic Trends survey shows London prices generally are 6.8 per cent higher than the national average.

City & Business