Record fall in high street sales

Hopes of lower interest rates are kept alive by a survey published today showing a record fall in high street sales in April.

Takings by the major retailers fell 4.6% last month compared with April 1998 following a 3.9% gain in March, according to the British Retail Consortium's monthly sales monitor.

The decline was exaggerated by the timing of Easter, which shifted business into the March trading period. However, taking March and April together, sales growth was just 0.1%, its lowest rate this year.

'We do not yet see any sign of a pick-up in the trend rate of growth as far as consumers are concerned,' said Bridget Rosewell, BRC chief economist adviser.

'Although incomes are rising, this is not yet reflected on the high street.'

The survey is at odds with other evidence of a recovery in consumer spending and confidence in the wake of interest rate cuts by the Bank of England's monetary policy committee (MPC).

But it is likely to prompt a re-appraisal of the outlook for interest rates in financial markets, where some analysts have been speculating that the next move may be upwards.

The MPC left rates on hold at 5.25% last week, saying they were consistent with hitting the government's 2.5% inflation target. But it did not rule out further reductions in the cost of borrowing, particularly if sterling remained strong.

The MPC's thinking will be fleshed out by tomorrow's quarterly inflation report.

The weakness of inflationary pressure further down the price pipeline from the consumer was underlined by yesterday's producer prices data.

According to the Office for National Statistics, rising oil prices and budget tax increases triggered a sharp 0.7% jump in the cost of goods leaving factory gates in April following March's 0.6% gain, but underlying inflationary pressures remained subdued.

Core output prices, excluding food, drink, tobacco and petrol, were unchanged in the month and fell by 0.6% year-on-year, leaving them close to a 40-year low.

Dharshini David, of HSBC Securities, said even though higher oil prices continued to damage headline output prices, they were more likely to be a threat to firms' profit margins than the general inflation outlook given that demand for UK manufacturers' products was so weak.

Richard Iley, of the Dutch bank, ABM Amro, said the collapse in wage costs from large-scale job losses in manufacturing was more than enough to offset higher commodity prices, leaving total costs under control.