Commentary: Optimism takes a shop knock

Post-Christmas cheer on the economy may be ebbing away already, despite the Chancellor's upbeat remarks at the start of the week. The latest retail sales figures revealed a shocking fall of 0.7 per cent, wrongfooting the markets, which had been encouraged by bullish retailers' reports.

The Central Statistical Office does its best to adjust for the huge seasonal surge in spending at Christmas. But it is inevitably difficult, and it would not be surprising if the statisticians subsequently recooked the books. It may be sensible to suspend despair until the January figures come out.

Other factors also suggest caution. The amount of cash and bankers' balances (M0) maintained its brisk growth rate in December, and the weekly reports of notes in circulation since then suggest this rate of expansion has continued. Cash is generally a good guide to high- street spending.

The figures show that department store sales rose but the overall total was dragged down by the poor performance of small retailers, like chemists, off- licences, stationers and the like. Perhaps consumers shopped at large department stores and supermarkets in search of price cuts not to be found at small retailers. Perhaps there is a will to spend as long as prices are low.

But there must be grounds for worry. However suspect, the figures strengthen the case for another cut in interest rates, if only to underpin confidence. Today's December unemployment figures are likely to show another sharp step towards 3 million jobless, a human toll that is itself undermining the willingness to spend.