Retailers enjoy bonanza

Retailers enjoyed their fastest rate of sales growth since the spring last month as consumers took advantage of low interest rates to go on a pre-Christmas spending spree.

Chillier weather in October prompted shoppers to stock up on their winter wardrobes, boosting clothing and footwear sales by 12% on a year earlier, and helping the retail sector as a whole post growth of 6%, according to the office for national statistics.

The 0.8% monthly rise in sales volumes scotched economists' predictions that debt-burdened households would have started tightening their belts, and confirmed that the rampant property market is still underpinning consumer spending. "Ongoing substantial increases in consumer credit and rising mortgage equity withdrawal would appear to herald robust retail spending during the crucial Christmas trading period," said Ross Walker, economist at Royal Bank of Scotland.

Low interest rates and steady consumer confidence have helped retailers put in a relatively strong sales performance this year, which has been echoed by activity in the corporate sector. Recent deals, such as tycoon Philip Green's bid for the Arcadia brands, the growing speculation of a bid for Safeway, and Icelandic raiders Baugur tipped as possible buyers for Allders, underline the strength of the upheaval in the industry. Sales growth slipped slightly in the summer, raising fears of a deeper slowdown, but yesterday's data confirmed reports from the CBI and the British Retail Consortium that consumers headed back to the shops in the autumn.

There is some evidence that retailers have been forced to offer bargains and special offers to boost sales, however. Statisticians said prices had been cut by 1% compared with the same month a year ago.

"These numbers highlight once again the fact that, at least to some extent, increased sales volumes are being bought by lower prices," said Simon Rubinsohn, chief economist at Gerrard.

The detail of the figures showed food stores had a strong October, registering a 4.7% increase in sales on a year earlier, while household goods stores also saw robust year-on- year growth, of 4.1%.

Evidence that the consumer boom is still under way will strengthen the argument of hawks on the Bank of England's monetary policy committee, who claim that a cut in interest rates would stoke up spending further, ending in a damaging crash. MPC members voted 7-2 to leave rates unchanged two weeks ago.

"Talk about high debt levels and job uncertainty putting a strain on consumer spending will be relevant at some stage but the question is one of timing," said John Butler of HSBC. "The continued buoyancy of consumer spending removes another of the arguments used by the two doves on the MPC who voted for a rate cut."

However, other economists still believe the resurgence in sales growth could be short-lived, and fear that with manufacturing stuck in recession, the economy will be left in the lurch if consumers abandon the shops.

"We still expect a pretty sharp slowdown in consumer spending growth over the next year or so," said Jonathan Loynes of Capital Economics.