British high street shops have suffered their worst falls in sales for at least two decades, triggering speculation that the Bank of England could cut interest rates as early as next month.
In the latest survey to point to a slump in household spending, the CBI said yesterday the balance
of retailers reporting a fall in sales volumes in June compared with a year ago was the biggest since it began its surveys.
The rolling average for the latest three months was also the worst since at least 1983, it said.
Business leaders moved to allay fears of a meltdown on the high street, but economists in the City of London changed their forecasts to predict imminent rate cuts.
The CBI said falls were sharpest in areas that were closely linked to the health of the housing market, such as furniture, carpets, DIY and household electrical goods. It blamed rising interest rates, oil prices, utility bills and worries over the housing market for sapping consumer demand and adding to businesses' costs.
The survey prompted HSBC to change its forecast to pencil in a rate cut by the Bank of England as soon as next month.
John Butler, its UK economist, described the figures as "absolutely shocking", adding: "The latest update on the UK consumer points to recession. In light of continued poor data, we expect the Bank to cut [rates] this year rather than wait until next. In terms of timing, a July or August rate cut is not out of the question."
Meanwhile, the retail analysts FootFall warned that Saturday's Live8 concerts could lead to a drop of up to 10 per cent in shopper numbers on the day.
The CBI tried to play down the findings, saying the survey was based on retailers' comparisons with June last year, when sales were given a huge lift by a combination of the Euro 2004 football championships and hot weather.
John Longworth, the chairman of its retail panel and an executive director at Asda, said the findings were "bad but not astronomically bad".
"While it looks a gloomy picture it is not necessarily as gloomy as it might appear," he said.
"The performance of the retail sector is extremely volatile. At this stage in the cycle there will be winners and losers - good businesses will work well and there will some casualties."
At an unscheduled press conference to publish the survey, Ian McCafferty, the CBI's chief economic adviser, said business was not calling for a rate cut.
"The Bank is not trying to hitch interest rates to the retail sector or individual consumers," he said. "The Bank needs to be mindful of a further slowdown but ... it would be premature to conclude the economy has slowed more than the Bank wanted or anticipated."
There was further evidence that consumer demand was holding up from Bank figures showing consumer credit and mortgage lending rose in May.
Consumer credit - bank overdrafts, hire purchase and store and credit cards - rose £1.8bn, more than the £1.6bn expected and a sharp pickup from April's £1.3bn.
Mortgage lending rose almost £8bn, up from £7.3bn in April, while new approvals - which point to house prices a few months ahead - rose to a 10-month high of 96,000 from 95,000 the month before.
Geoffrey Dicks, at Royal Bank of Scotland, said: "As far as the housing market is concerned there is no case for an immediate rate cut."
- INDEPENDENT
British high street shops have suffered their worst falls in sales for at least two decades, triggering speculation that the Bank of England could cut interest rates as early as next month.
In the latest survey to point to a slump in household spending, the CBI said yesterday the balance
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