The figures suggested tighter credit conditions have so far had little impact on high street spending.
Yet again the consumer, a famously hardy breed, had carried on shopping despite low wage growth, worries over pensions and higher interest rates – not to mention the spectre of a housing market slowdown and a run on a bank.
The pound strengthened against the dollar as analysts said consumers’ resilience would give an additional boost to third-quarter growth and reduce the chance of an early cut in interest rates.
Yet some argued that the apparently undulled appetite of consumers had depended on a further month of aggressive discounting by retailers, with the growth in nominal spending painting a much weaker picture.
The Office for National Statistics said the volume of retail sales rose 0.6 per cent in September, above expectations for the third successive month, while the the less volatile quarterly growth rate rose from 1.3 per cent in August to 1.7 per cent.
But the value of sales grew just 0.6 per cent between the second and third quarters, slightly below the long-run average, while the ONS’s retail sales deflator – a measure of price pressures on the high street – suggested prices were falling at their fastest annual rate since January 2005.
Economists at the Royal Bank of Scotland said the figures suggested “a sea-change in high street pricing”, with the deepest cuts in prices for household goods and internet shopping easily outweighing rising food prices.
“There’s no way you can see this as a sign of strength,” said Michael Saunders, economist at Citigroup. “In judging implications for interest rates . . . the weakness in prices is at least as important as the gain in volumes.”
Others offered a more optimistic interpretation. Ben Broadbent, economist at Goldman Sachs, said the retail sales deflator “tells you very little about the level of discounting”, and saw the figures as mildly positive.
He said consumption was likely to weaken slightly over the next six months, but that an improvement in wage growth could limit the effects of rising mortgage payments on disposable income.
Retailers are upbeat about trading prospects up to Christmas, according to a survey by Barclays, but most expect sales to stagnate next year.
David Bush, head of retail at Grant Thornton, said several big retailers expected to increase their gross margins, but admitted sales were slowing for discretionary items such as furniture, an area that was often “first into a consumer slowdown”.
“We believe the latest strength should be considered as more of a ‘last hurrah’ for consumers than a re-acceleration of the underlying pace of growth,” said George Buckley, economist at Deutsche Bank.
High street discounts might tempt consumers into the odd extra purchase, but the biggest influence on consumer confidence will be the strength of the housing market and the size of household mortgage bills.
So far, there is little evidence that tighter credit conditions are leading to a wholesale rise in mortgage repayments for mainstream borrowers, but there are clear signs that activity is slowing in the housing market and price growth slackening off.
“If the housing market weakens, the most important effect would probably be on . . . household investment – sales of new homes, home improvements and the costs associated with moving house – more than on retail spending,” Mr Broadbent said.