Retailers are 'fuelling inflation'

Retailers are ramping up prices at their fastest pace in 20 years, a key report yesterday revealed, adding to concerns about inflation.

The latest CBI distributive trades survey also showed that retail sales growth had slowed more than expected this month, hitting its weakest level since June.

Economists said the findings suggested that consumers were reining in spending in the face of surging inflation and slow wage growth.

The survey will make particularly uncomfortable reading for Bank of England policymakers, who are moving closer to raising interest rates from their record low in an attempt to curb rising price pressures.

The UK high street enjoyed a slight recovery in January, according to recent official figures, after the worst December on record. But the VAT hike and soaring input costs are likely to squeeze household incomes in the months ahead.

Howard Archer, chief UK economist at IHS Global Insight, said: "The substantially weaker survey fuels concern that consumers are now reining in their spending appreciably in the face of serious headwinds.

"Given that consumer spending accounts for some 65 per cent of GDP, this is worrying for growth prospects and something that the Bank will need to watch carefully as it agonises over its interest rate decision."

Monetary policy committee member David Miles warned this week that rate-setters must be careful not to derail the economic recovery.

However, with inflation already double the Bank's target, members will be dismayed at firms' plans to pass on higher costs to consumers.