Shops blame rate rises for sales fall

Britain's retailers attacked the Bank of England today after higher interest rates and dismal weather meant shops suffered a "washout" in August.

Activity fell last month to its lowest level since last December, prompting the head of the British Retail Consortium to call on the Bank's monetary policy committee to refrain from further increases in the cost of borrowing.

Kevin Hawkins, the director general of the BRC, said: "These figures should sound warning bells even in the usually deaf ears of the MPC that the consumer economy is increasingly fragile in the crucial run-up to Christmas and cannot sustain another rise in interest rates."

The consortium's monthly snapshot of retailing showed sales were only 0.6% higher in August than a year earlier once increases in floor space were taken into account. In the three months to August, the rate of growth was 1.7% over the same three months of 2003, compared with 2.6% in the three months to July.

"It was not a good month for anyone", said Mr Hawkins, blaming the "abysmal" August weather for affecting every sector of retailing. "However, even allowing for changes in buying habits brought about by the weather, there is no doubt about the underlying trend of weak consumer confidence."

The BRC's figures follow other recent data pointing to a slowdown in the housing market and consumer spending. Although City analysts now believe that base rates of 4.75% are close to their peak, there was separate evidence yesterday of strong demand for jobs adding to inflationary pressure in the labour market.

A survey carried out by the Recruitment & Employment Confederation and Deloitte found that skill shortages were forcing employers to offer higher salaries to recruit and retain staff.

Brett Walsh, Deloitte's European head of human capital, said: "The UK recruitment market expanded strongly again in August, with consultancies placing an increased number of candidates in new jobs as demand for staff showed the strongest rise since January 2001. Employers are pushing ahead with strategies to increase headcount following sustained economic growth. In order to attract the right candidates, employers are offering substantially higher pay rates and this emphasises the importance of retaining existing talent."

With the Bank concerned that the tightness of the labour market could put the government's 2% inflation target at risk, Gareth Osborne, the managing director at REC, said: "Continuing strong demand for staff is good news for workers, particularly as growth seems to be across sectors. The impact of skills shortages on wage inflation could be worrying though for the economy as a whole, and leads us to remain cautious in our forecasts for the labour market as interest rate rises hit home."