UK retail sales show surprise dip

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UK retail sales have posted a surprise drop in September, with experts blaming an increase in utility prices, less discounting and higher interest rates.

The Office for National Statistics (ONS) said sales fell 0.4% from the previous month. Many analysts had expected that sales would increase.

September's figures bring the annual rate of increase to 3.2%.

Consumer spending is one of the main drivers of UK economic growth and there have been concerns that it could wane.

'Reductions of growth'

However, the ONS said that despite the drop in retail sales, prices on the High Street were still on the increase.

In September, the average price of goods was 0.6% higher than a year earlier - the first gain since January 2002 and the quickest increase since June 2001.

The higher prices were likely to underline inflationary fears at the Bank of England, analysts said, adding that they still expected interest rates to rise later this year.

"There's a question mark over the strength of consumer demand, but we don't think this will derail prospects for a rate increase next month," said Philip Shaw, chief economist at Investec.

According to the ONS, "underlying growth in retail sales slowed further in September, following the slight slowdown reported last month."

"Reductions of growth were evident across all retailing sectors," it added.

The ONS said the biggest cause of the slowdown was weaker demand at household goods stores and non-store retailers, where sales fell by 2.3% and 4.7%.

Sales at non-specialised stores and clothing stores also fell.

One bright spot was an increase in demand at food stores, where sales increased by 0.8%.