October spending rise surprises retailers

British retail sales rose more than expected in October and at their sharpest rate in three months, according to a CBI survey published today.

The employers' organisation said 37% of firms in its monthly distributive trades survey saw sales rise during the month, while 26% reported a fall.

The balance of +11 far exceeded retailers' own expectations of a -4 balance. In September, the figure hit a year-and-a-half low of -9.

The figures indicate that consumer demand still appears to be holding up and increase the probability that interest rates could still rise further in the months ahead.

But the CBI cautioned that growth was still below normal for the time of year and that the underlying trend was still downwards. It argued that the Bank of England should hold off from raising interest rates.

"An interest rate increase in November would be damaging and there is no need for the Bank to consider a further rise for the foreseeable future," said John Longworth, chairman of the CBI's survey panel.

Just one of 45 analysts polled by Reuters last week predicted that the Bank would lift interest rates above the current 4.75% when the monetary policy committee next meets on Thursday. A succession of weak data has convinced most that five hikes since last November have succeeded in slowing the economy down.

Howard Archer, of the consultancy, Global Insight, said: "While the CBI distributive trade survey for October was stronger than expected, the underlying trend in spending has clearly softened in recent months as higher interest rates bite.

"Nevertheless, spending is still being supported by high employment, a modest pick-up in earnings growth and attractive prices on the high street."

A separate report by the British Retail Consortium today showed that shop prices in October were 1.37% lower than a year earlier, representing the steepest decline in the survey's history. The figures suggest that the rise in retail sales is coming at the expense of shops' profit margins.

The CBI survey showed retailers expect sales growth to pick up slightly further in November, with the expectations balance standing at +12.

The survey was conducted between September 29 and October 20 with 200 responses.