Retail figures suggest slowdown

Further signs of an economic slowdown emerged today as figures showed an unexpected fall in retail sales in October and a sharp drop in mortgage approvals.

The Office for National Statistics (ONS) said retail sales fell 0.4% last month compared with an upwardly-revised increase of 1.1% in September. It was the first drop in retail sales in three months. Analysts had expected sales to be flat on the month.

Meanwhile, figures released by the Council of Mortage Lenders showed mortgage approvals in October, an indicator of future housing demand, fell to 90,000 compared with 126,000 a year ago.

Analysts said today's figures made it even more likely that the Bank of England would hold interest rates at 4.75% for some months to come. Minutes released yesterday by the Bank of England showed that all nine members on its monetary policy committee (MPC) voted to keep rates on hold earlier this month without even discussing the need for an upward move.

"October retail sales were significantly softer than expected, indicating that higher interest rates are now having a significant dampening effect. Increasing concern over the housing market may also be adding to consumer caution. The retail sales data will reinforce belief that interest rates have now peaked," said Howard Archer, the chief UK economist for the consultancy Global Insight.

Mr Archer added, however, that consumer spending may prove to be resilient over the coming months, supported by continuing attractive prices on the high street, healthy employment, modestly rising real wages, and growing belief that interest rates may have peaked.

The ONS said October saw a decrease in sales in all sectors apart from clothing stores. Retail sales came to ?19.1bn and average weekly sales were ?4.8bn. Although this was 4.3% more than a year ago, it represented the lowest annual growth since December 2003.

"Underlying retail sales growth is distinctly lower than in the first half of this year," the ONS said.

On a three-monthly basis, the volume of retail sales in the August-October period was 1.2% higher than in the previous three months following growth of 1.1% in the three months to September. By comparison, the equivalent three-monthly growth rates for the first half of the year averaged 1.8% and did not fall below 1.7%.

"It suggests that the crucial Christmas trading period for retailers has begun subdued," said John Butler, an analyst with HSBC. "All this evidence points to a consumer slowdown rather than a collapse but is yet another set of dovish indicators from the consumer."