British retail sales rose more than expected in October and at their sharpest pace in three months, a survey showed yesterday.

The Confederation of British Industry said 37 per cent of firms in its monthly distributive trades survey saw sales rise in October while 26 per cent reported they fell, giving a balance of +11.

That was well above the 1-1/2 year low of minus nine the balance hit in September and retailers' own expectations last month of minus four.

Gilts and interest rate futures edged further into the red as the figures indicated that consumer demand still appeared to be holding up well and increased the probability that interest rates could still rise further in the months ahead.

But the CBI cautioned that growth was still below normal for the time of year and that the underlying trend was still downwards and said the Bank of England should hold off from raising interest rates.

"An interest rate increase in November would be damaging and there is no need for the BoE to consider a further rise for the forseeable future," said John Longworth, chairman of the CBI's survey panel.

Only one of the 45 analysts polled by Reuters last week predicted that the central bank would lift interest rates off their current 4.75 per cent tomorrow as a succession of weak data has convinced most that five hikes since November have succeeded in slowing the economy down.

But as the CBI survey shows, it may still be too early to write off the resilience of the British consumer, particularly if retailers stand ready to cut prices.

A separate report by the British Retail Consortium yesterday showed that shop prices in October were 1.37 per cent lower than a year earlier, the steepest decline in the survey's history.

Official data have also shown retail sales still rising rapidly, perhaps at the expense of shops' profit margins.

The CBI survey showed retailers expect sales growth to pick up slightly further this month, with the expectations balance standing at +12.

The survey was conducted between September 29 and October 20 with 200 responses.