CBI's Christmas figures dilute cheer

HOPES of a firm retail recovery have suffered a setback after the Confederation of British Industry reported that high street sales this Christmas fell slightly from levels achieved a year earlier.

The CBI's latest Distributive Trades Survey, conducted from 16 December to 6 January, appeared to contradict anecdotal reports of brisk sales in the days before Christmas and beyond. This may indicate that City hopes of a decisive gain in December sales in official figures released tomorrow could be disappointed.

Despite these developments, Norman Lamont yesterday reaffirmed his belief that conditions for recovery were 'firmly in place'. Speaking in Brussels after a meeting of European Community finance ministers, the Chancellor said the Treasury's forecast of 1 per cent growth won support from the commission. He also predicted that the British economy would run ahead of Germany's this year.

'With the excellent opportunity now there for British business to seize, there is no reason why Britain should not grow more quickly this year than our major EC competitors,' he said.

But according to the latest survey of attitudes in manufacturing industry, an obsession with cost-cutting and a lack of investment threaten Britain's ability to pull out of the recession.

The survey, carried out by the technology firm Computervision with help from the CBI and the Department of Trade and Industry, also shows that most companies regard short-term profitability as an indicator of performance at the expense of cash flow and market share.

Separately, Robin Leigh-Pemberton, Governor of the Bank of England, hinted that further cuts in interest rates were not imminent. Suggesting that the economy might now be emerging from recession, the Governor said: 'We need, above all, a stable monetary environment, one in which policy is geared to the achievement of price stability.'

His comments follow the Chancellor's cautious weekend message on further interest rate cuts.

Last month's slight decline in sales was the third successive monthly fall compared with levels achieved a year earlier. But the decline was less than expected in November. The rate of decline in orders by retailers also slowed by more than was expected in the previous month.

The CBI found that several retailing sectors - notably furniture and carpets, chemists and clothing - expected sales this month to register a gain over January 1992.

The fall in sales last month compared with a gain in December 1991, when heavy price discounts lifted the volume of sales moderately but at the expense of the traditional January sales.

Nigel Whittaker, chairman of the CBI's distributive trades panel, said that many retailers reported a disappointing Christmas but the results were still an improvement on sales in recent months.

'It is still too early to regard this as a sustained recovery in consumer spending with debt levels high and unemployment continuing to rise,' Mr Whittaker said. 'Consumers are cautious and are looking out for bargains. The cuts in interest rates in the autumn have not yet had their full impact on consumer spending.'

In the manufacturing survey, about half the companies wanted a more interventionist Department of Trade and Industry but many of those questioned accused the department of lack of understanding and excessive bureaucracy.

The survey highlights lack of communication between industry and the City, with more than 40 per cent of listed firms and 84 per cent of unlisted ones admitting to having no regular contact with the financial community.

Other weaknesses include the low priority given to customer needs - only 6 per cent put it top of the list on important issues - and to research and development. The latter is still seen by many companies as a cost rather than as an investment that can help in the long run.

The report warns: 'Unless manufacturers get a grip on customer focus, instead of having their vision dominated by cost-cutting they will experience severe difficulty in becoming or remaining competitive.'

UK manufacturing regards itself as better than Germany's in terms of production costs and cost-effectiveness but worse on research and new manufacturing techniques. Overall, Germany is still seen as the greatest threat.

The survey also reveals a sense of complacency within the home market, with most manufacturers believing they are better than their UK rivals.