Shoppers return in droves as prices tumble

Retail sales staged a surprise rally last month
Retail sales staged a surprise rally last month
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RETAIL sales staged a surprise rally last month after shoppers were tempted back to the shops by the steepest fall in prices since 2002.

Sales volumes jumped to a better-than-expected 0.8% in October, compared to the month before when they fell 0.4%, according to the Office for National Statistics (ONS).

The key drivers were petrol, clothing and grocery sales, which demonstrates that the ongoing supermarket price war is attracting customers.

Over the year average store prices fell 1.5%, the largest fall for 12 years, forced down by reductions in petrol prices.

Taken over a 12-month period sales volumes rose 4.3% in October, compared to an expected 3.8%. Monthly sales volumes were expected to rise by 0.3%.

The report said the reduction in petrol prices was the sharpest since the end of 2010.

Consumer Price Index inflation edged up to 1.3% earlier this week but the Bank of England expects the figure will probably dip below 1% in the coming months - and that interest rates will not be raised until well into 2015.

Pay when excluding bonuses is rising by 1.3%, with the Bank forecasting pay to lift by an average of 3.25% in 2015.

Markit chief economist Chris Williamson said: “UK retail sales rebounded in October, and rising wages and lower interest rate expectations bode well for further robust sales growth in the coming months.”

But he added: “The improvement in sales volumes also in part reflects aggressive discounting, especially among the supermarkets, rather than solely being driven by increased demand.”

Last week supermarkets Sainsbury’s and Asda both reported falls in like-for-like sales, with Asda posting its worst performance in nearly a decade.

World First chief economist Jeremy Cook said: “While there is a case to be made for a good Christmas for consumers - with sales discounts likely to open earlier and be deeper than years before - the outlook for the high street as a whole is not a good one.”

IHS Global Insight chief UK economist Howard Archer added that October’s strong retail sales may mean the Bank of England could end up raising interest rates from their historic 0.5% low in August rather than later in 2015.