High street spending rises: CBI sees steady trading growth rather than consumer boom

HIGH street spending was above normal for the time of year last month for the first time since 1990, according to the latest survey of retailers by the Confederation of British Industry.

'This improvement is encouraging, but it suggests steady growth rather than a consumer boom - even now fewer than one in four retailers consider trading conditions to be good,' said Andrew Sentance, the CBI's economic director and one of the Chancellor's 'seven wise men'.

Some 52 per cent of retailers told the CBI that their sales in July were above last year's level, with 20 per cent reporting that sales were down on 12 months earlier. This was the strongest figure in more than three years.

Despite the optimistic tone, the figures are still consistent with a small fall in sales between June and July. Moreover, the survey was published as the governor of the Bank of Scotland, Bruce Patullo, warned that the economic upturn appeared to be slowing.

'On balance I am a little cautious and have over the past two months veered toward the view of those who fear the recovery may be running out of steam,' he said in an interview.

'I am slightly surprised to find myself in that camp but the feedback from customers tells me the rate of recovery may have plateaued.'

The rise from 30 to 32 per cent in the net balance of retailers reporting a rise in sales in the last year would be consistent with a small fall in the official retail sales figure on the month, if the recent relationship between the survey and the official data holds true.

A 0.5 per cent fall on the month would see the annual rate of increase rise to 4.2 per cent in the year to July, as sales fell by a larger 0.8 per cent between June and July last year. July's official sales figures are due tomorrow.

Retailers expect the annual growth rate of sales to rise again in August, which would allow them to reduce their unwanted stocks of unsold goods and increase orders from suppliers. This would be the eighth successive month in which retailers had reported a rise in sales over last year.

'This improvement in retail sales is only filtering through slowly to the rest of the economy,' Mr Sentance said. 'Retailers still consider stock levels to be too high and orders placed with suppliers are growing at a much slower rate than sales.'

Before the CBI figures were published, City economists were on average forecasting a 0.3 per cent fall in sales between June and July. The forecasts vary widely, from a rise of 0.5 per cent to a fall of 1 per cent.

Analysts believe high street spending remains on an upward trend, but that a fall back is likely after the unexpected 1.3 per cent rise between May and June. Sales volume was pushed up in June by an early start to the summer sales, triggered in part by a build-up in stocks of unsold goods. Ruth Lea, of Mitsubishi Bank, believes retail sales are rising at an underlying rate of 0.3 or 0.4 per cent a month.