Sales dip surprise

September witnessed a surprise drop in UK retail sales, blamed by analysts on burgeoning utility prices, fewer discounts and higher interest rates.

According to The Office for National Statistics (ONS), the month’s sales surrendered 0.4 per cent compared with the prior month, an unexpected twist, since many experts were predicting sales would actually increase.

Consumer spend is one of the main drivers of economic growth and concerns have been voiced that it could wane.

ONS figures showed that despite the dip in retail sales, high street prices were still on the increase, with the average price of goods in September actually 0.6 per cent higher than a year earlier, which represented first gains since January 2002.

Many commentators predicted that these higher prices were likely to underline inflationary fears at the Bank Of England and that they still expected interest rates to rise later in 2006.

Philip Shaw, chief economist at investment bank Investec, said ‘there’s a question mark over the strength of consumer demand, but we don’t think this will derail prospects for a rate increase next month.’

The ONS said the major cause of the retail slowdown was weaker demand at household goods stores and non-store retailers, where sales waned by 2.3 per cent and 4.7 per cent respectively. Sales at non-specialised stores and clothing stores eased, whereas a silver lining among the clouds was rising demand at food stores, where sales sparked up by 0.8 per cent.