06 November 2007, 19:14 PM

  • Higher interest rates are starting to impact on consumer spending, with retail sales for October 2007 rising by just one percent year-on-year. However, food and drink sales are holding up well, showing growth of two percent.

October’s overall growth was the weakest since the 0.5% reported in November 2006, said the British Retail Consortium, which released the figures.

Kevin Hawkins, BRC director general, said, “This result reflects the downward trend in sales growth that we have been anticipating as a consequence of higher mortgage interest rates and other pressures on household incomes.

“It points to some challenging trading conditions for many retailers in the run-up to Christmas, which are likely to persist until interest rates are reduced and consumer confidence begins to improve.”

Commenting on the more optimistic figures for food and drink sales, IGD chief executive, Joanne Denney-Finch, commented, “Food and drink sales continued to grow, although marginally below last year’s level. October provided numerous opportunities for retailers to showcase promotions for Halloween, religious festivals and the Rugby World Cup.

“Christmas started in-store, and some retailers made announcements on price-cutting. Moving early for Christmas is recognition that many consumers are tightening their belts, although how this will impact performance remains to be seen.

“Last year most retailers turned in strong performances despite a slow start, and this uncertainty may influence promotional phasing, with retailers keen to hit Christmas goals as soon as possible.

She explains that the fight is now on to provide great value for Christmas and retailers are already jockeying for position. “Some great products have begun to appear instore, with grocers preparing to contest leadership on both quality and price.”