Rate cut hopes hit by strong food sales

Strong sales of food and drink unexpectedly boosted retail sales in February, dampening chances of a cut in interest rates before May.

Figures from the Office for National Statistics showed consumers snapped up champagne, wine and chocolates to celebrate Valentine's Day and Mother's Day, pushing retail sales volumes up 1 per cent. Analysts had been predicting a decline of 0.2 per cent.

However, it was a different story for non-food sales which inched up just 0.2 per cent. Household goods slumped 4.2 per cent in the sharpest decline since February 2000 as the slowing housing market impacted on the homeware sector.

And sales in non-specialist stores, which include department stores, dropped 3.6 per cent, the largest fall since the research began in 1986.

This was borne out by the latest sales figures from John Lewis, which reported its second consecutive weekly drop at its department stores, with home and furniture sales hit the hardest.

John Lewis's commercial, director Phil Hullah, said: "Looking ahead from here, market conditions are clearly difficult and Easter week looks likely to be another stretching one."

However, the robust food sales in February makes it less likely home owners will get any respite from high interest rates before May. Howard Archer, the chief UK and European economist at Global Insight, said: "The resilience of retail sales in February and the reduced discounting significantly dents hopes that the Bank of England could trim interest rates again as soon as April."

Jeremy Rance, the national director of the retail and wholesale sectors at Barclays Commercial Bank, called the retail figures "surprisingly resilient". He said: "Shop prices in February were down by just 0.3 per cent compared to last year, but this hides the contrast between rising foodstuff prices and continuing sharp falls in the prices of other goods. Clearly retailers are having to work harder to maintain footfall on the high street."