U.K. CBI Retail Sales Index rises to the highest in two years

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An index of U.K. retail sales rose to the highest in two years as New Year discounts spurred Britons to buy more clothes and household goods such as washing machines, the Confederation of British Industry said.

The survey of 163 retailers found 51 percent sold more goods than a year earlier and 21 percent sold fewer, the largest U.K. employers' group said in London today. The net balance of 30 percentage points is up from 25 percentage points in December, according to the survey conducted Jan. 2-17. That was double the median estimate of 15 in a Bloomberg News survey of 14 economists.

The figures suggest consumers kept spending after retail sales rose at the fastest pace in 18 months in December. Shoppers, encouraged by soaring house prices and a boom in bonuses paid to bankers, drove growth in Europe's second-largest economy to the fastest pace since 2004 in the fourth quarter.

Sales growth “has carried convincingly through into the January sales,'' said John Longworth, executive director of Asda Group Plc and chairman of the CBI distributive trades survey. “It was a much better story than retailers had expected.''

Footwear and leather goods led sales, with an index balance of 67 percentage points, followed by groceries at 63 percentage points and durable household goods at 62 points.

Expectations

The balance of expected sales in February rose to 22 from 4 in January, the first time the index has increased since October, and a measure of average sales over the latest three months jumped to 15 from 4 in the period through December.

U.K. gross domestic product rose 0.8 percent from the previous three months, the most since the second quarter of 2004, and retail sales surged 1.1 percent in December, the government said.

Marks & Spencer Group Plc reported a sixth straight quarterly sales increase in the three months ended Dec. 30 as advertisements featuring the model Twiggy and singer Shirley Bassey boosted clothing sales before the holidays.

Chief Executive Stuart Rose said the momentum will be difficult to maintain as rising utility bills and personal debt are poised to crimp consumer spending.

Retailers had to cut prices to attract customers, Asda's Longworth said. “December's strong showing was driven by some very heavy discounting and it is likely January will be the same.''

Interest Rates

Soaring energy prices lifted consumer-price inflation to a decade-high of 3 percent last month, prompting the Bank of England to raise its benchmark rate on Jan. 11 for a third time since August.

Investors expect the central bank to raise the cost of borrowing again this quarter. The implied rate on the March contract was 5.73 percent in London at 11:40 a.m. The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade. A basis point is 0.01 percentage point.

“Evidence that consumers are spending freely at the moment and retailers' increased confidence about future prospects is likely to heighten the Bank of England's concerns that retailers will increasingly try to push through significant price hikes,'' said Howard Archer, chief European economist at Global Insight Inc. in London.

House prices at a record high are helping underpin spending. The cost of a home in England and Wales rose an annual 6 percent, the biggest increase since July 2003, to an average 170,800 pounds ($335,000), according to a survey of 3,500 real- estate agents by Hometrack Ltd., a London-based property researcher, published today.

Source : Jennifer Ryan

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