UK sees slowing of New Year sales growth

New Year sales failed to spark a revival on the British high street after figures today showed trading grew at its slowest rate for more than a year.

In its latest distributive trades survey, the CBI said 39% of firms saw year-on-year sales volumes rise in the first half of January, compared to 34% who said they were down.

The rounded balance of 4% is the lowest since November 2006, and continued a downward trend in sales growth since April last year.

The performance encouraged many analysts however, as retailers last month said they expected sales to fall in January compared to a year ago. Firms also told the CBI they were expecting to see a sales pick up next month.

Howard Archer, chief UK economist with Global Insight, said the figures showed customer spending was faltering, but not collapsing.

He added that the survey "reinforces the case for the Bank of England to cut interest rates gradually rather than aggressively given current significant inflation risks".

Economists at the Royal Bank of Scotland said: "The CBI distributive trades survey showed a marginally more resilient start to 2008 for retailers than expected."

Vicky Redwood, UK economist at Capital Economics, was more pessimistic, however.

"The survey is hardly an encouraging first indicator of spending in January - and certainly fits in with our view that spending growth is set to slow sharply this year," she said.

Business conditions varied between the different retail sectors.

Sales firmed up year-on-year in the footwear and leather, and furniture and carpets sectors, after decreasing in December's survey. And sales growth remained steady in the grocery sector.

Sales fell sharply in the durable goods sector however, which includes big ticket items such as washing machines and TVs, where a balance of 66% reported a year-on-year decline - the fastest rate since October 2005 (minus 87%).

Falling sales were also seen in clothing and hardware, china & DIY.

Orders placed with suppliers grew slightly in the year to January.

John Longworth, chairman of the CBI's distributive trades panel, said: "The January sales were a little flat this year, and were weaker than the lacklustre lead-up to Christmas.

"While sales of groceries and household essentials went quite well, shoppers are watching their wallets, and that can be seen in the big drop in sales of big-ticket items like TVs and washing machines.

"However, this survey and recent CBI manufacturing data show that, while market turbulence is undoubtedly affecting consumer confidence, the economy as a whole is nonetheless bearing up and is continuing to grow, if more slowly.

"Overall retail sales were still better than expected this month, and the high street does predict a slight improvement in February."

The survey was conducted between January 2 and 16 this year.