Rate cuts lure shoppers back to stores

Britain's reluctant consumers are gradually returning to the shops as lower interest rates dispel fears of recession this year, according to government figures released yesterday.

Data from the office for national statistics showed that cheaper borrowing costs, bargain offers and an early Easter pushed up retail sales volumes by 0.4 % between February and March.

Analysts said the 1% growth in activity in the first quarter of 1999, considered a better guide to the underlying trend, indicated the economy was emerging from the slowdown in the second half of last year.

Growth figures for the whole economy will be released today but dealers believe that base rates, now at 5.25%, may be close to their floor.

The ONS said there had been a significant increase in the growth rate of retail sales since the weak figures recorded in the run-up to Christmas. 'Even allowing for the timing of Easter, it would appear that the underlying rate of growth has picked up.' Following a mini-boom in 1997, driven by windfalls from building society flotations, retail sales stagnated during 1998, with volumes in the latest three months only 1.6 % higher than a year earlier.

But there have been signs of a recovery since Christmas spearheaded by sales of household goods, reflecting the six cuts in interest rates since last autumn and a pick-up in the housing market.

According to Merrill Lynch economist Ian Stewart, the robust retail sales figures were matched by strength in other parts of the consumer sector, with car sales increasing even after allowances had been made for the new T registration models.

'All told, it fits with the picture in which rate cuts are feeding through to the consumer sector and having an effect on the published numbers,' Mr Stewart said.

Royal Bank of Scotland economist Neil Parker warned that the latest figures were being compared with a 'disastrous' close to 1998. It would be unwise to get 'carried away'.