Festive joy is on cards for retailers but New Year VAT hike a worry

FRESH data emerged yesterday heralding the prospect of brighter Christmas trading on the high street though worries continue that the New Year VAT rise will bring another dip in sales.

The CBI's distributive trades survey showed 43 per cent of retailers reporting a boost to sales in November against a year earlier, with grocers and clothing retailers the main winners. This was a significant improvement on October's balance of 36 per cent.

But those expecting the sales boost to continue for the next three month halved from 22 per cent in October to 11 per cent in November.

It came a week after the Office for National Statistics reported that retail sales volumes rose 0.5 per cent in October, and further fuelled hopes that Christmas retail sales will prove resilient.

Adding to the encouraging news for retailers, department store group John Lewis yesterday reported that its sales were up over 12 per cent in the first half of the current trading week.

Ian McCafferty, the CBI's chief economic adviser, said: "High street sales growth help up well in November, and retailers are hopeful that the run-up to Christmas will be just as strong."

The CBI said sales grew most strongly in November for grocers and clothing retailers, which was in line with recent strong figures from high street bellwether Marks & Spencer.

Howard Archer, an economist at IHS Global Insight, said: "On the face of it, the CBI survey and the John Lewis figures suggest that the key Christmas period is shaping up pretty well for retailers."

The CBI survey said retailers were confident the improvement would continue, with an expected balance for December of plus 45 per cent. However, it added that a rise in VAT from 17.5 per cent to 20 per cent in January may cloud the longer-term outlook.

McCafferty said: "Looking into the New Year, retail sales growth may lose some of its sparkle, as consumers rein in spending after Christmas.

"Confidence remains fragile, VAT is rising in January, and a combination of weak wage growth and high inflation is eating into household incomes."

Recent data has suggested the retailing sector is enjoying mixed fortunes. The Scottish Retail Consortium revealed last week that its members' sales fell 1.8 per cent in October.

And retail tycoon Sir Philip Green, owner of Bhs and the Arcadia chains including Topshop and Burton, said recently that he expected the retailing climate to get tougher.

Despite uncertainty about consumer sentiment, yesterday's CBI report said retailers were planning to invest more over the next year compared to the past 12 months (plus 28 per cent).

Price inflation remains high with 51 per cent of retailers saying average selling prices rose on a year ago, and 6 per cent saying they fell.That gives a balance of plus 45 per cent.