UK retail sales suffer first fall in nine months

British retail sales fell last month for the first time since January, suggesting shoppers are tightening their purse strings and reinforcing expectations of lower interest rates ahead.

Consumer spending has been a key engine of the economy in recent years and the data pushed sterling to a four-year low against the euro as investors bet rates could come down as soon as next month.

The Office for National Statistics said sales fell 0.1 per cent last month and grew in September by 0.3 per cent, just half the rate that was initially reported.

"Retail sales have been surprisingly elevated for some time now and today's data shows that this is starting to unwind," said Alan Clarke at BNP Paribas.

"Overall, a bad outcome that adds weight to our call that the Bank of England will not wait until February before cutting interest rates - December is our bet."

Expectations of lower interest rates have gathered pace in recent days as surveys have pointed to a slowing economy and fast-cooling housing market.

Details of the data showed the biggest fall came from clothing and footwear stores where milder weather depressed sales. Food stores also registered a decline following steep price increases in this sector.

Overall, however, prices were on average 1.1 per cent lower than a year ago - having fallen on an annual basis for the last four months.

Evidence that retailers were cutting prices to lure in buyers added to the bleak outlook for retailers.

Clothing retailers Next, French Connection and JJB Sports have all warned that trading conditions are getting tougher and WH Smith said it remained cautious about the consumer environment.

Surveys from the Confederation of British Industry and the British Retail Consortium have also painted a downbeat picture, showing sales volumes rose last month at their slowest pace for nearly a year.

The Bank of England has raised interest rates five times since August last year but many households are only beginning to feel the full impact as fixed-rate mortgage deals come to an end.

Signs of a convincing slowdown in the housing market are also making consumers more reluctant to splash out.

"We are not surprised there has been a re-tracement in retail figures for October," said Philip Shaw, chief economist at Investec.

"Together with the downward revision to September figures, the perception of the strength of high street activity in recent months has turned."