Summer bounce lifted high street sales, says CBI

Retail sales grew at their fastest pace for nearly two years in August as consumers took to the shops despite the rise in interest rates, the CBI said yesterday.

Further signs of consumer confidence emerged as Bank of England figures showed that mortgage lending hit a three-year high in July, and approvals of new loans reached their highest level since the start of the year.

The holiday season boosted shop sales for August beyond retailers' expectations. The CBI's monthly survey found that 12% more retailers said sales rose rather than fell compared with last year; they were up from 7% in July and more than double City forecasts of 5%. The balance was also the strongest since December 2004.

The results came as a surprise after the end of the World Cup and sweltering temperatures depressed sales in July. But the August holiday season, along with some good weather, boosted sales to higher than normal levels, the CBI said. Grocery and durable household goods achieved the fastest growth, with sales of flat-screen televisions showing no signs of cooling off despite expectations that sales would fade along with the hopes of England's football team.

Not all sectors fared so well. While sales in DIY and household-related products improved on July, growth was still soft.

"The positive growth in sales over the summer holidays will be a welcome relief to retailers and has exceeded their expectations," said John Longworth, chairman of the CBI's distributive trades survey.

Worryingly for the inflation-conscious Bank of England, the CBI reported that average selling prices rose for the first time in two years, with 12% more retailers reporting a rise rather than a fall. Retailers had been dealing with higher energy costs by cutting jobs, but now they seem to be raising prices too. "This should not halt sales growth," said Mr Longworth. "Customers will still enjoy discounts across a range of non-food items, [but] the rate of growth [of sales] may drop back."

The Bank of England figures showed that the housing market had stayed in rude health. Mortgage approvals for new house purchases crept up to 120,000 in July, from 119,000, contradicting recent data from the British Bankers' Association which said mortgage approvals had fallen by 7% month-on-month.

Net lending on secured dwellings showed the biggest pick-up, with an increase of £0.8bn to £9.8bn in July, the strongest month since September 2003.

However, other figures released by the Bank yesterday showed that consumers were still reluctant to borrow more money to finance spending. Credit-card borrowing rose marginally, by only £200m in July, as did loans and overdrafts, but well below levels seen in 2004 and 2005.

"With unemployment rising, the erosion of household spending, and the prospect of higher interest rates, arguably the conditions for consumers are tougher now than in 2004," said John Butler, economist at HSBC.

The letting market was also strong as rents rose at a record pace in the quarter to July thanks partly to demand from immigrants, according to a survey by the Royal Institution of Chartered Surveyors. The rise was the strongest in the survey's history, driven by a strong economy, a lack of affordability for first-time buyers and eastern European immigration.

High cost of London

London has overtaken New York as the world's most costly residential property market, helped by swankier areas such as Chelsea and Belgravia. CBRE Hamptons International found prime residential property in London on average cost about £1,200 per sq ft (£111 per sq metre) compared with £1,000 a sq ft in New York. "Prices currently achieved in the prime areas of central London are the highest in the world when measured by price per square foot," the estate agency said. Buoyant UK prices contrasted with a slowing US market, it said. Tokyo was third most expensive.